International Federation of Accountants

Member Body Compliance Program

Russell Guthrie, Executive Director

IESBA Meeting

New York, USA

October 19, 2011

Member Body Compliance Program

• Program and Compliance Advisory Panel Program and Compliance Advisory Panel launched in 2004 as part of IFAC Reformslaunched in 2004 as part of IFAC Reforms

• Established 7 Statements of Membership Established 7 Statements of Membership Obligations (SMOs):Obligations (SMOs):– QA, Education, ISAs, Ethics, IPSASs, I&D, IFRSQA, Education, ISAs, Ethics, IPSASs, I&D, IFRS

• PIOB oversightPIOB oversight

A Brief History

Compliance Program Focus

• Supporting continuous improvement of strong PAOs through SMOs

• Influence PAOs’ agendas and actions

• Information and knowledge sharing

• Collaboration with stakeholders

Strategic Considerations

Compliance Program Focus

• Part 1 – Information Gathering: Overview of regulatory and standard-setting framework in a member’s jurisdiction

• Part 2 – Self-assessment: Benchmarking against the 7 SMOs

• Part 3 – Own Strategy: Action Plans for development & continuous improvement in addressing the SMOs

Continuous Development and Improvement

Beginning of the Road

Impact / Achievements

• Action Plans as first step:– Transparent plans for continuous improvement

(153 out of 163 published)– Annual updates by all member bodies– Monitoring of progress by the CAP

• Time and resources needed to achieve meaningful change

• Outreach activities and policy advice provided by the IFAC Staff

Impact / Achievements

• To date – key focus on commitment to and participation in the Compliance Program

• Enforcement Actions

– 43 suspension warnings

– 18 suspensions

– 9 expulsion warnings

– 5 expulsions

Enforcement – since 2005

Uptake of the Code of Ethics

• Working on adoption of the recent CodeWorking on adoption of the recent Code• Adoption environment:Adoption environment:

– Ethics Committee of the Audit Council under Min Fin Ethics Committee of the Audit Council under Min Fin – Independence rules must eventually be aligned with Independence rules must eventually be aligned with

Russian legislationRussian legislation– Initial proposal to start with existing Russian CoE (based Initial proposal to start with existing Russian CoE (based

of old and abbreviated version of IESBA Code) and then of old and abbreviated version of IESBA Code) and then make necessary additionsmake necessary additions

– Auditors and accountants need different CodesAuditors and accountants need different Codes

• IFAC Staff providing guidance and analysis to IFAC Staff providing guidance and analysis to PAOs, Large Firms, MoFPAOs, Large Firms, MoF

Russia –Drivers of Local Modifications

Uptake of the Code of Ethics

• Challenges:Challenges:– Barriers of legal, institutional, cultural and financial natureBarriers of legal, institutional, cultural and financial nature– Lack of ongoing mechanism for adopting and implementing Lack of ongoing mechanism for adopting and implementing

changeschanges– Lack of current translation makes it difficult to discuss with Lack of current translation makes it difficult to discuss with

regulators, analyze independence requirements and organize regulators, analyze independence requirements and organize relevant communications and trainingsrelevant communications and trainings

– To achieve meaningful change a thorough cultural change is To achieve meaningful change a thorough cultural change is neededneeded

• IFAC coordinates formation of a Latin America IFAC coordinates formation of a Latin America Review Committee to facilitate translation at the Review Committee to facilitate translation at the regional levelregional level

Latin America – Multiple Stakeholders

Uptake of the Code of Ethics

• Ministry of Justice adopts ethical requirements for Ministry of Justice adopts ethical requirements for CNCC:CNCC:– Requirements for CNCC endorsed by MinJus in consultation with Requirements for CNCC endorsed by MinJus in consultation with

AMF (securities market regulator), and the H3CAMF (securities market regulator), and the H3C– Requirements are considered to be more stringent than IESBA CodeRequirements are considered to be more stringent than IESBA Code

• CSOEC drafts its ethical requirements to be approved CSOEC drafts its ethical requirements to be approved by Ministry of Economy and Financeby Ministry of Economy and Finance– Direct incorporation of IESBA code impossible due to a different Direct incorporation of IESBA code impossible due to a different

structure (Ordinance of 1945, OEC bylaws, other doctrinal texts) structure (Ordinance of 1945, OEC bylaws, other doctrinal texts)

• Both French Bodies are planning to promote the Both French Bodies are planning to promote the adoption of the recent IESBA CoE to the adoption of the recent IESBA CoE to the Government Government

France – More Stringent Requirements

Uptake of the Code of Ethics

• IFAC Member sets the ethical requirements IFAC Member sets the ethical requirements through a mandate implied by general through a mandate implied by general consensusconsensus

• Adopted IESBA Code of Ethics in 2008 Adopted IESBA Code of Ethics in 2008 without any modificationswithout any modifications

• Issuing the current IESBA CoE with Jan Issuing the current IESBA CoE with Jan 2012 effective date2012 effective date

• Action Plan focus on implementation Action Plan focus on implementation supportsupport

Malawi – Direct Adoption

Uptake of the Code of Ethics

• CoE clearly used as a major point of reference

– Strong awareness among PAOs

• Adoption challenges

– Principles and rules at a national level often embedded in legislation, regulation and member body governance documents

• Implementation challenges

– Overcoming cultural barriers

Overarching Themes

Tracking of Adoption – Challenges

• Government (MinFin, Ministry of Justice)

• Regulators (Capital Market, Insurance, Banking)

• Professional accountancy organizations

• Cultural differences, even different understanding of the concept of morality

Complex National Environments

Tracking of Adoption – Challenges

• Auditors:– Big firmsBig firms– SMPs SMPs

• Professional Accountants in Business

• Management Accountants

• Public Finance Accountants

• Accounting Technicians

Differing MB Constituencies

Different than Standards that Tend to be Adopted en Block

Tracking of Adoption – Challenges

Other Matters of Interest

• SMO Revisions

– Clarified no best endeavors where PAO has direct responsibility

– Removed “no less stringent standards” langauge

• How do we best track and articulate “adoption” of CoE and/or key independence provisions

Moving Forward

Other Matters of Interest

• Who is will determine whether local modifications are substantive (i.e., lead to different outcomes)?

Moving Forward

International Federationof Accountants

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