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International Federation of Accountants

International Federation of Accountants. Global Regulatory Developments in the Financial Reporting Supply Chain by Charles Tilley. FRSC GLOBAL DEVELOPMENTS. Financial Turmoil 2001.

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International Federation of Accountants

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  1. International Federation of Accountants Global Regulatory Developments in the Financial Reporting Supply Chain by Charles Tilley

  2. FRSC GLOBAL DEVELOPMENTS Financial Turmoil 2001 • Led to IFAC reports to restore credibility, improve governance, achieve convergence & further develop the financial reporting supply chain • Recommendations emphasize importance of: • Tone-at-the-top • Board & auditor independence • Risk & control systems • Balance between compliance & performance • Aligned remuneration • Transparent & reliable communication • Convergence to principles-based global standards

  3. FRSC GLOBAL DEVELOPMENTS Global Temperature Check on Progress & Follow-up • Responses from 74 IFAC member bodies from 58 countries: • Albania, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Botswana, Brazil, Bulgaria, Canada, China, Cyprus, Czech Republic, Denmark, Egypt, Finland, Germany, Hong Kong, India, Ireland, Israel, Japan, Jordan, Kenya, Kosovo, Lesotho, Lithuania, Malawi, Malaysia, Malta, Mexico, Mongolia, Netherlands, Nicaragua, Pakistan, Philippines, Poland, Republic of Korea, Romania, Russian Federation, Saudi Arabia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Switzerland, Tanzania, Tunisia, Turkey, Uganda, Ukraine, United Kingdom, United States of America, Uruguay, Uzbekistan & Vietnam

  4. FRSC GLOBAL DEVELOPMENTS Global Temperature Check Four topic areas: • Corporate Governance • Financial Reporting Process • Audit of Financial Reports • Usefulness of Financial Reports

  5. FRSC GLOBAL DEVELOPMENTS Global Temperature Check Four topic areas: • Corporate Governance • Financial Reporting Process • Audit of Financial Reports • Usefulness of Financial Reports

  6. FRSC GLOBAL DEVELOPMENTS Major Positive Governance Developments: • New or revised & updated codes of governance Major Negative GovernanceDevelopments: • No major negative regulatory governance developments in many countries • Issues with application of governance concepts • Issues as identified in previous IFAC reports Institute Actions on Governance: • Thought leadership, education & awareness

  7. FRSC GLOBAL DEVELOPMENTS Progress on Governance Issues

  8. FRSC GLOBAL DEVELOPMENTS Follow-up on Governance Recommendations

  9. FRSC GLOBAL DEVELOPMENTS Other Remaining Governance Issues: • Risk focus too narrow • Little integration of governance into overarching business model • Lack of safe harbor protection • Need for more governance in public sector Governance Opportunities for IFAC & Member Bodies: • Collaboration to further develop, bring together & disseminate governance guidance

  10. FRSC GLOBAL DEVELOPMENTS Global Temperature Check Four topic areas: • Corporate Governance • Financial Reporting Process • Audit of Financial Reports • Usefulness of Financial Reports

  11. FRSC GLOBAL DEVELOPMENTS Major Positive Reporting Developments: • Adaption of /convergence to IFRS Major Negative ReportingDevelopments: • Implementation is an issue; need for guidance • Risk on increasing rules and prescription • Continued focus mainly on historical reporting model Institute Actions on Reporting: • Commenting on standards; • Providing guidance & training for preparers

  12. FRSC GLOBAL DEVELOPMENTS Progress on Reporting Issues

  13. FRSC GLOBAL DEVELOPMENTS Follow-up on Reporting Recommendations

  14. FRSC GLOBAL DEVELOPMENTS Other Remaining Reporting Issues: • Lack of safe harbor protection for companies that make a “good faith” effort to report relevant info • Suitable reporting standards for SMEs & other entities • (Also) Principles versus rules • (Also) Fair value accounting and cash flow Reporting Opportunities for IFAC & Member Bodies : • Case studies of companies with high quality, business oriented reporting in current economic downturn • Guidance on business reporting requirements • Guidance on audit process for preparers

  15. FRSC GLOBAL DEVELOPMENTS Global Temperature Check Four topic areas: • Corporate Governance • Financial Reporting Process • Audit of Financial Reports • Usefulness of Financial Reports

  16. FRSC GLOBAL DEVELOPMENTS Major Positive Auditing Developments: • Convergence to International Auditing Standards • Emphasis on quality assurance & oversight • Guidance on SME audits & liability reforms Major Negative Auditing Developments: • Overregulation & move away from self regulation • Increased complexity & length of auditing standards Institute Actions on Auditing: • Translation and adaption to (clarified) ISAs • Providing training in ethics & auditing, especially for SMPs; quality control reviews; liability reforms

  17. FRSC GLOBAL DEVELOPMENTS Progress on Auditing Issues

  18. FRSC GLOBAL DEVELOPMENTS Follow-up on Auditing Recommendations

  19. FRSC GLOBAL DEVELOPMENTS Other Remaining Auditing Issues: • Challenges for SMPs to keep up-to-date • Little understanding of benefits of audit • (Also) Auditing in today’s turbulent environment • (Also) Litigation risks around audit of fair values Auditing Opportunities for IFAC & Member Bodies: • Further improve convergence • Share best practices in ethics and auditing • Provide additional guidance for SMEs

  20. FRSC GLOBAL DEVELOPMENTS Global Temperature Check Four topic areas: • Corporate Governance • Financial Reporting Process • Audit of Financial Reports • Usefulness of Financial Reports

  21. FRSC GLOBAL DEVELOPMENTS Major Positive Usefulness Developments: • Easier access to financial information; XBRL progress • More engaged stakeholders & more narrative info • Focus on reporting & assurance due to credit crunch Major Negative UsefulnessDevelopments: • More extensive but less reader-friendly & useable financial statements • Fair value in illiquid markets is a challenge Institute Actions on Usefulness: • Training & awareness; leadership in standard setting; providing feedback to regulators; reporting awards

  22. FRSC GLOBAL DEVELOPMENTS Progress on Usefulness Issues

  23. FRSC GLOBAL DEVELOPMENTS Follow-up on Usefulness Recommendations

  24. FRSC GLOBAL DEVELOPMENTS Other Remaining Usefulness Issues: • Insufficient reporting of non-financial indicators, risks & sustainability • Unclear link between reporting & strategy of company • Use of fair value Usefulness opportunities for IFAC & Member Bodies : • Reduce complexity & increase meaningful narrative reporting • Provide leadership, guidance & training in IFRS, XBRL, SME accounting, sustainability reporting etc. • Develop public sector financial reporting framework

  25. FRSC GLOBAL DEVELOPMENTS Overall conclusions from survey • Regulatory progress in many areas of governance, reporting, auditing & usefulness of financial reports • Many institute actions in areas of governance, reporting, auditing & usefulness of financial reports • Remaining issues provide opportunities for IFAC and Member Bodies for further action

  26. FRSC GLOBAL DEVELOPMENTS Financial Turmoil 2008 • Crisis initially started in USA financial sector, but spread throughout global economy • Naïve to think that crisis will not be followed by loud calls for more regulation • However, we just saw regulatory progress in many areas of governance, reporting, auditing & usefulness of financial reports • What next?

  27. FRSC GLOBAL DEVELOPMENTS What next? • Better application of already existing regulation and previous recommendations to overcome current crisis: • Tone-at-the-top • Board & auditor independence • Risk & control systems • Balance between compliance & performance • Aligned remuneration • Transparent & reliable communication • Convergence to principles-based global standards

  28. FRSC GLOBAL DEVELOPMENTS What next? (2) • Better oversight • And, if necessary, not more but improved regulation: • Based on robust evaluation of what went wrong • Proportionate to issues it is addressing • Principles over rules • Cost-benefit justification

  29. FRSC GLOBAL DEVELOPMENTS What next? (3) • Important issues to address: • Boards have to take more responsibility for company’s actions • Expanded risk management beyond internal control over financial reporting • Adequate attention to strategic oversight and managing value at risk • Remuneration better linked to implementation of strategy & risk, and creation of sustainable value • Better, more useful business reporting

  30. FRSC GLOBAL DEVELOPMENTS Next steps for this project: • Report on global regulatory developments affecting financial reporting • Interview series with investors, preparers, auditors & regulators on the right things to do to make business reporting more useful • International Good Practice Guidance on evaluating & improving business reporting in organizations

  31. International Federation of Accountantswww.ifac.org

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