International
Raising Awareness of SMPs
IFAC Board member and Chair of the SMP Committee,
Sylvie Voghel, FCGA, is a passionate advocate for small business.
FROM: JUL-AUG 2006 ISSUE
In 2005, the International Federation of Accountants (IFAC) established the IFAC Small and Medium Practices Committee (SMPC) and appointed Sylvie Voghel, FCGA, as Chair of the new committee. A past Chair of CGA-Canada and technical advisor to IFAC, Voghel is now in her second term on the IFAC Board. She has been a Board member since 2003.
As the co-owner of Enveloppe Concept Inc., an envelope manufacturing business in Montreal, Voghel has first-hand knowledge of the important role accountants play in the small and medium-sized enterprise sector. Through her current roles, she is working to advance SMP issues on the international stage.
CGA Magazine: How would you describe the main concern of the IFAC Board today?
Voghel: The members of IFAC's Board are committed to strengthening the accountancy profession worldwide, promoting the adoption of high quality standards, and protecting the public interest. We see these as fundamental to restoring public confidence in financial reporting and contributing to economic growth and stability. The IFAC Board has strengthened the due process for standard-setting boards and expanded the consultative advisory groups to those boards. We established the Developing Nations Committee to support development of the profession in emerging nations. And we work in partnership with international regulators and institutions to establish effective oversight to protect the public interest.
CGA Magazine: IFAC represents both big and small nations. Does that sometimes prove to be a challenge?
Voghel: IFAC is a truly global organization. Our more than 160 member bodies are located in 120 countries around the world — countries at all levels of economic development. I believe that IFAC effectively represents the interests of our members in both developing and developed nations. The IFAC Board includes representatives from developed and developing countries, which enables us, as a leadership group, to see issues from both perspectives. I do not think our views are divergent — for the most part we share common goals, we are just at various stages in reaching those goals and may have different approaches.
One of IFAC's strengths is to mobilize its membership to support developing nations. For example, we are collaborating with member bodies to develop a knowledge-sharing resource and new guidance on corporate governance and internal controls. All members will benefit from this work.
IFAC's Developing Nations Committee is leading work to support the needs and represent the interests of developing nations by partnering with development agencies, governments, and others to build accountancy capacity in various countries around the world. Last December, the committee released new guidance on establishing professional accountancy bodies. The committee is now working to prepare a country-specific approach to supporting developing nations, helping countries where there is no established profession and those that have only begun to build the professional, financial, and regulatory architecture necessary to support economic growth.
Through the Small and Medium Practices Committee, which I chair, IFAC supports the work of small/medium accounting practices and their small/medium enterprise sector clients, which are a substantial driver of economic growth in both developed and developing countries.
CGA Magazine: We often speak about globalization and the issues it poses for the accounting profession. What is the IFAC perspective on this continuing trend?
Voghel: In the globalized economy, it is especially important for accountants to have a consistent approach in providing accurate and timely financial reporting information. To do so, we must have reliable, high-quality international standards that can be applied in countries around the world. Investors in one country need to be able to understand the financial reports of a company in another country. To accurately ascertain the true financial position and economic health of an entity, it is essential that businesses report in a common financial reporting language, which requires common international standards that are consistently applied.
IFAC sees the development of high quality standards and continued international convergence as essential for economic growth and prosperity. IFAC's independent standard-setting boards develop international standards of auditing and assurance, ethics, education, and public sector accounting. These boards set their standards transparently with consultation and input from stakeholders.
CGA Magazine: It's now been several years since the major accounting scandals broke in the U.S. and, to a lesser extent, in Europe. Do you feel confidence in financial reporting has returned, or is there still more work to be done?
Voghel: Restoring public confidence in financial reporting has been an area of significant focus for IFAC for the past several years. To help ensure that the public interest is protected, we have implemented significant improvements to IFAC's standard-setting activities. Public members now serve on the International Auditing and Assurance Standards Board (IAASB), the International Ethics Standards Board for Accountants, the International Accounting Education Standards Board (IAESB), and the International Public Sector Accounting Standards Board.
We have also established or expanded consultative advisory groups to each of these boards to enable stakeholders to provide direct input into standard-setting. All standards and exposure drafts can be downloaded from the IFAC website at no charge.
IFAC is working in cooperation with international regulators to establish public interest oversight for our standard-setting activities in auditing and assurance, ethics, and education, and for the IFAC Member Body Compliance Program. In February 2005, the Public Interest Oversight Board (PIOB) was established to oversee these activities, and in its first year of operation, approved the process for IFAC's standard-setting boards for auditing, ethics, and education. I am confident that IFAC and the PIOB will continue to work together to protect the public interest.
CGA Magazine: Let's turn to some of the unique issues facing the small and medium-sized enterprise (SMEs) sector and to small and medium-sized accounting practices (SMPs). What is the overriding concern for SMEs today?
Voghel: The main problem facing SMEs is an economic framework designed with large public companies in mind. As regulators and standard setters work toward the highly desirable goal of convergence, this framework is imposed on SMEs, even though it is poorly suited to SMEs and often fails to accommodate their circumstances and characteristics, which are distinct from their larger counterparts. The end result is SMEs are smothered in red tape.
Take accounting standards. International Financial Reporting Standards (IFRS) have changed the financial reporting landscape for smaller entities enormously, as IFRS places heavy emphasis on fair value accounting and less on historical cost data, which is arguably more useful to the users of SME financial reports and is typically less costly to collate.
Regulators and standard setters should endeavour to ensure that the information needs of SMEs and their stakeholders are adequately considered when developing standards and guidance. Some SME proponents say that standard setters should "think small first" but a more realistic approach is what I term a "size neutral" one.
CGA Magazine: Do SMPs face unique challenges?
Voghel: SMPs face a similar problem to that faced by their SME clients — burdensome and inappropriate regulation. Public practice has become highly regulated. This results from the desire to have a single homogenous set of rules and regulations applicable to all entities, regardless of size. This one-size-fits-all approach means that rules written with large, public interest entities in mind are imposed on all entities.
Auditing standards around the world are fast converging on International Standards on Auditing (ISAs). ISAs are going through a period of rapid and intensive change. The impetus for this change was the perceived need to tighten the rules and bolster public confidence in auditing in the wake of audit failures such as Enron and Parmalat. The result is auditing standards which are arguably more prescriptive and which tend to place greater emphasis on fraud and the design and implementation of internal controls than auditors of small entities were accustomed to. And there has been an increased focus on firm quality controls and independence issues.
Keeping up with all these changes presents an enormous challenge for SMPs, many of which are confronted with limited technical resources. Meanwhile, regulators and standard setters appear to be keener to regulate than to build the capacity of SMPs to understand, use, and comply with standards through training and education.
For example, SMPs would gain a lot from interactive training and education materials prepared by standard setters to explain how to implement the rules. This would have the effect of empowering SMPs, which should be a top priority for standard setters, on par with the development of quality standards themselves.
CGA Magazine: How successful do you feel IFAC is in addressing the concerns of SMPs and SMEs?
Voghel: Over the past few years IFAC has become increasingly sympathetic to SMP/SME concerns. Today all IFAC pronouncements are prepared after a thorough consultation process involving representatives from the SMP community, and include, where relevant, specific guidance on SMP/SME issues.
IFAC has also recognized the growing importance of SMP/SMEs to the development of a dynamic profession and national economic growth by setting up its SMP Committee. Many SMEs turn to SMPs for regulatory and business advisory services. It is important that SMPs are equipped to provide the services that SMEs need for cost effective compliance with rules and sustainable growth. The SMP Committee works to this end, and is actively encouraging the IASB to fast track the development of IFRS for SMEs to create accounting standards suited to the great majority of SMEs.
CGA Magazine: Overall, do you feel the profession is making real progress in terms of increased professionalism and the adoption of high quality IFRS and auditing standards?
Voghel: I believe that the profession has indeed made real progress in its commitment to international convergence and to professionalism by accountants worldwide. The best example of this is the success of the IFAC Member Body Compliance Program. Launched in 2004, the program seeks to determine if and how IFAC member and associate institutes, such as CGA-Canada, are meeting their requirements for membership as set out in the Statements of Membership Obligations (SMOs). The SMOs require member bodies to promote incorporation of international standards set by IFAC and by the IASB into national standards. They also require members to adopt quality assurance, investigation, and discipline programs to ensure that individual accountants are acting in accordance with ethical and professional standards.
The first part of the program asked member bodies to provide information on the regulatory and standard-setting frameworks in their home countries. As proof of their commitment, all of IFAC's active members and associates have submitted responses, which are being posted on the IFAC website.
We are now engaged in Part 2 of the program, which is a self-assessment of how members and associates are meeting their obligations. These responses, which will be made public in the second half of 2006, will provide a global snapshot of the state of the accountancy profession. They will also serve as the basis for action plans to be developed by members.
I believe that the commitment to professionalism and international convergence is evinced by the overwhelming participation in the Member Body Compliance Program worldwide.
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