IFAC at 30: from Munich to the world

Since its inception at the 1977 World Congress in Germany, the International Federation of Accountants (IFAC) has gone on to become the global voice of the accountancy profession. Peter Williams tracks its progress over the past 30 years, and discovers what lies ahead

Thirty years ago this autumn, the International Federation of Accountants (IFAC) was founded. It was formally established in October 1977 during the 11th World Congress of Accountants in Munich, Germany. Sixty-three professional accountancy bodies from 51 countries - including ACCA - signed the Constitution that gave birth to the organisation.

IFAC was established to protect the public interest by developing international standards, promoting international convergence, and contributing to the development of the accountancy profession in all countries around the world.

IFAC's chief executive for the past five years is Ian Ball. He knows the organisation well; prior to becoming CEO he worked as a volunteer chairing the Public Sector Committee for over a decade. Ball says that the biggest impact on IFAC has been globalisation. He says: 'Fifteen years ago auditing standard setting was dealt with by individual nations. IFAC set auditing standards for countries that did not have their own.' Then came the Asia Economic crisis of 1997 when the collapse of the Thai baht affected currencies, stock markets and other asset prices in a number of Asian countries. Ball says: 'The Asia Economic crisis showed the interconnection of the global economy and forced a rethink that auditing standards should be set at an international level.' IFAC has been benefiting from and leading that rethink ever since.

Its progression was given even greater impetus around the turn of the century by the corporate scandals - Enron et al - that struck at the heart of the accountancy profession. IFAC's paymasters - the accountancy firms as well as the country professional bodies - realised that investing in IFAC, in terms of hard cash and commitment, was essential if the credibility of the profession was to be restored.

Achievements

One of the major areas of progress achieved by IFAC over the last three decades, according to Ball, is that the standard setting process has become much more transparent. This can be traced back to IFAC's Proposals for Reform - published in late 2003 - which were developed with the input of regulators and other international organisations. These bodies included the International Organisation of Securities Commissions, the Financial Stability Forum, the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors and the World Bank.

IFAC says the 2003 reforms represent some of the most significant changes in its history. For instance, the IFAC Regulatory Liaison Group, which works with the Monitoring Group of regulators, and the IFAC Member Body Compliance Program, requires IFAC members and associates 'to demonstrate their efforts to promote adoption of international standards as well as establishing quality assurance and investigation and discipline programs'. And in February 2005, IFAC created the Public Interest Oversight Board (PIOB) to oversee its standard setting in auditing and assurance, ethics and education. The objective of the PIOB is to increase the confidence of investors and others that the public interest activities of IFAC are properly responsive to the public interest. Being responsive to public interest is a constant refrain at IFAC. Ball says: 'The PIOB is a major change. IFAC has no say over the appointment of its eight members. It has significant authority in terms of the due processes that are followed in the setting of standards. While standard setting is a professional activity, it is closely monitored by an external community.' While events may have shaped and changed IFAC's role over the years its fundamental remit has not altered.

Asked how ACCA views IFAC, Neil Stevenson, ACCA's marketing director, says: 'ACCA views IFAC as an instrumental driver in the global accountancy profession, promoting standards and collaboration which act in the public interest and help to establish confidence in the work which accountancy bodies such as ACCA undertake around the world.' Although IFAC has established itself as a global force both in the eyes of the accountancy profession and others, it did not always have the standing or credibility it enjoys today. For many years IFAC had a small staff and produced its work on the back of a small budget. Back in the 1970s IFAC relied heavily on the American Institute of Certified Public Accountants (AICPA); with an initial annual budget of US$145,000 it needed every bit of help it could get. How that picture has changed. IFAC's revenue was US$15.3m in 2006 (up from US$12.8m the year before) and included US$8.4m from membership dues (that's accountancy bodies) and US$4.7m from the Forum of Firms, which represents about 20 international firms that do transnational audits.

Commenting on how IFAC has developed, Stevenson says: 'IFAC has changed over the last 30 years. It has broadened and deepened its relevance across the world, by increasing its membership to represent all parts of the profession; increasing the range of standards it is involved in, such as in education, professional standards, ethics; and recognising the wide roles of accountants in business today.'

The organisation continues to work principally through four main boards (they were originally committees) covering audit and assurance, education and ethics and public sector accounting. The first three were established at the outset while the public sector body was set up in 1986.

Inevitably as a global body, questions will be raised with the relationship that IFAC has with regional and national regulators. Jon Grant, executive director of the UK's Auditing Practices Board (APB), part of the UK's Financial Reporting Council, highlights one such issue. He says: 'A tension exists between the move towards independent regulation of auditing in many countries and IFAC's traditional role. IFAC has responded by improved oversight and greater transparency of its process for setting auditing, ethical and education standards. Whether this has been sufficient to address concerns will be revealed over the next two years as the debate about the adoption of International Standards on Auditing (ISAs) by the European Commission is brought to a conclusion.'

No conflicts

Ball says he does not perceive conflicts and that IFAC works with the European Commission (EC) and other jurisdictions - for instance the EC has two observers on PIOB. However, he does raise concerns over jurisdictions altering IFAC's standards. He says: 'To me, the great danger is with us ending up with different standards in different jurisdictions. We don't mind additions but not alterations to our core body of standards.' The International Accounting Standards Board has similar fears of such carve outs, which would lead to regional not global standards.

As Grant implies, as the 30th anniversary celebrations approach, it is perhaps inevitable that questions are raised about the future direction of IFAC. Stevenson is clear: 'In the future, I expect IFAC to continue to promote global standards and, increasingly, to take an interest in the adoption of those standards by its member bodies to ensure consistency of implementation. I also expect IFAC to continue to take an interest in all aspects of the profession - in particular, championing the development of accountancy in constituencies such as the corporate sector, small practitioners and developing nations.'

He adds that there is also a role for the whole profession to play in ensuring that high standards of professionalism and ethics are maintained, within a system of regulation which puts principles above rules to provide a flexible approach relevant to the multiple needs of stakeholders.

Ball too has a strong idea of the direction in which IFAC should be moving. While it may come as no surprise to learn that standard setting will continue, wait for the move to publish in different languages. At the same time, ethical standards for all of the world's accountants will continue to grow. As well as these moves, Ball points to four other areas.

• Industry and commerce. Balls says: 'We do cater for them but not in a way that recognises the work of accountants in underpinning economic development across all sectors.'
• Small and medium business and practice and developing countries. Ball describes accounting as an essential economic factor in development. In many countries the accounting profession is weak and IFAC want to ensure a stronger profession in these nations.
• Public sector accounting. Kicking off 10 years ago, IFAC's public sector accounting standard work has been accepted widely - for instance by the United Nations. But there is more to do. Corporate accounting standards may be criticised at times but, in terms of quality, they still have a thing or two to teach the government sector.
• Issues of public policy. Ball says: 'IFAC will continue to develop a global voice on public policy issues as the profession becomes more global.'

IFAC's response to events over the last three decades means that, from modest beginnings, it has forged a clear role for itself, championing the development and implementation of global standards and promoting collaboration across all areas of the profession. Above all, it wants to continue to be seen as acting in the public interest.

Peter Williams is a journalist and a chartered accountant. He writes on accounting, financial reporting and auditing issues.