The US-based International Federation of Accountants (IFAC) is a global organisation for the accountancy profession. It has 159 accounting bodies – including the Institute of Chartered Accountants of India (ICAI) and the Institute of Cost and Works Accountants of India (ICWAI) – as its members and affiliates in 129 countries. With a mission to strengthen and develop strong international economies, IFAC is working with governments and international financial institutions to issue audit practice alerts that can pre-empt major economic downturns in future. Robert Bunting, president, IFAC, shares his views on the global economic crisis and the role of accountants to Joe C Mathew during his visit to ICAI and ICWAI recently.
As a global body representing the accounting profession, what was IFAC’s response to the global economic crisis?
Back in 2007, we had come out with a paper on financial reporting. It talked about the need for transparency and fair valuation in financial accounting. Later, when the crisis became evident, there was lot of talk about the role of fair valuation in financial accounting. Fair value did not create the crisis, it exposed the crisis. It could be argued whether fair value is exaggerated, but the fact remains and fair valuation and transparency are required if you need to serve public and investor interest. We have come out with a series of accounting guidlines for our members and advocate fair and transparent financial reporting, improvements in corporate governance and changes in the risk management systems.
Will the economic crisis in Greece have a larger impact outside Europe?
Greece is no longer a local problem. In fact, there is no such thing as location-specific economic crisis. What started as a local crisis is a global crisis today. So, there is no single set of solutions to prevent global crisis. The crisis should be managed at the local level. Risk management, corporate governance, financial reporting based on fair value are the answers. On specific country issues, we have been advocating over the last several years for transparency in government accounting. If Greece’s crisis is repeated in other countries in the coming days, it’s again lack of transparency that has led to the crisis.
How is India when it comes to transparency in government accounting?
We do not comment on individual nations. But I believe India is on its path to converge its government accounting systems with the internationally accepted levels of transparency.
Does IFAC support accounting bodies that have dual responsibilities of standard setting and regulation of the profession?
IFAC advocates shared responsibility in setting accounting standards. I believe both government nominees and professionals are engaged in Indian accounting standard setting process. When it comes to a dual role, there is no internationally accepted model. For instance, regulation and standard setting are carried out by two independent bodies in the United States. There are situations where the standard setter is also the regulator. But, then, there will be some oversight groups who do the regulation within the same organisation. The key from the IFAC perspective is that there should be checks and balances. However, during the last one decade, there is an increasing trend among various countries to prefer two separate bodies for standard setting and regulation.
How do you rate the performance of your member institutions ICAI and ICWAI?
IFAC membership is given to institutions that follow best practices in a very strict manner. We are closely associated with ICAI in developing accounting standards for small and medium scale industries which is highly relevant from the India perspective. We are studying ICWAI standards and attempting to take them global.
How prevalent is the cost accounting system globally?
In cost accounting standards, perhaps India is the global leader. Its role is limited to select sectors and is closely linked to public accounting in most countries. We are discussing about the possibilities to make this system acceptable in more regions.
What are the chances of ICAI hosting the next World Congress of Accountants in Hyderabad?
ICAI is one of the bidders. There are institutes in other countries who have bid to host the conference. We are finishing the site visits and a report will be submitted to IFAC Board soon. The Board will take a decision, probably by September.