News Analysis: The silent superpower

But that is the intention of a fledgling organisation – the International Forum on Accountancy Development – which has now been running for just over a year and is due to hold its fourth meeting in London next month.

Globalisation has guaranteed that financial crises no longer restrict themselves to one country and its immediate neighbours. The Asian financial crisis in 1997-98 illustrated the impact of the financial destabilisation of one far off economy on far more robust world economies thousands of miles away. Financial markets have become global rather than national.

But instead of the divide between rich and poor countries narrowing, inequality has dramatically increased over the last 20 years with one fifth of the world’s population now controlling four-fifths of the world’s wealth.

The United Nations is this week due to release its annual report on the situation of developing countries, and is expected to call for more debt relief.

IFAD was established on the back of the Asia crisis following a clarion call in 1997 from James Wolfensohn, president of the World Bank.

Wolfensohn criticised the profession for not doing enough to enhance the accounting capacity and capabilities in developing and emerging nations.

The then IFAC president, Frank Harding, held discussions with the then vice president and controller of the World Bank, Jules Muis, regarding the need to work jointly in this area.

But, what has been accomplished since 1997? Relationships between the developed and developing world were highlighted at last month’s annual meeting of the World Bank and the International Monetary Fund in Prague.

Trevor Manuel, South Africa’s finance minister, told delegates that the West was guilty of hypocrisy by not opening its markets to agricultural and industrial products from the Third World. At the same time thousands of demonstrators converged on the Czech capital to demand the write-off of third world debt. The goals of IFAD are not as controversial, but they are extremely important.

An alliance of accountancy groups and firms from across the world, IFAD is intended to be a platform on which regulators, international financial institutions, investors and representatives of the accountancy and auditing professions can come together to ensure that economic downturns like that in Asia are never repeated.

Despite its laudable aims and objectives, IFAD has so far failed to make much of an impression of leading figures in accountancy, let alone the world at large.

But the challenge it faces is clear, and was recently made abundantly clear to a group of influential international accountants.

Ira Millstein, a special adviser to the World Bank, invited to the five-yearly conference of the International Federation of Accountants Committee in May this year, surprised and irritated his audience by launching a verbal assault on accountants.

Millstein criticised the profession, particularly the Big Five firms, for failing to offer consistent standards of audit that meet the needs of investors worldwide. ‘You are not doing everything you can do to provide consistent, cohesive information. Accounting and auditing are the lynchpin to improve capital flows,’ he told an audience of international accountants.’If you provide wrong information, you can misguide capital flows. If you lead, others will follow,’ he told representatives of Big Five firms, urging them to establish ‘voluntary minimum guidelines and a comfort zone’ below which they never venture.

Harding, former president of IFAC, thanked Millstein for his ‘enormous challenge’ and replied that that was the exact reason why IFAD had been established.

One area where accountants can aid consistency is that of international

. Iosco, the club of world stock market regulators, and the European Commission this year endorsed one set of core global accounting standards. Those core standards took a minimum of five years to be developed and endorsed. But the biggest economies still do not apply them.

And as far as auditing standards are concerned, Ian Plaistowe, chairman of the UK’s Auditing Practices Board, recently predicted it would be another 10 years before auditing standards crossed national borders to become global rules.

Since May, the one or two senior accountants have stood up at various conferences in an attempt to promote the work of IFAD.

But discussion of the new organisation is often met with blank expressions among those gathered.

When Sir Bryan Carsberg, secretary-general of IASC, summed up at the end of the first of a two-day conference on international accounting standards hosted in Brussels last month he was promptly interrupted by Laurence Rivat, partner at Deloitte & Touche France, who reminded him of the important work of IFAD.

‘Yes, IFAD will offer the best solution for better communication between all sectors,’ said Sir Bryan, thanking Rivat for a fresh reminder of the acronym’s meaning.

IFAD’s website talks about its fourth meeting in London next month. But tellingly, the section on its website entitled, ‘New in Projects in Progress’ is blank. What exactly the accountancy profession can do for emerging economies under the aegis of IFAD remains to be seen, but no one can doubt its motives are sound.

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MISSION FOR CLARITY

IFAD’s ‘vision’ is based on harmonising financial reporting to serve the aims of issuers and users of financial statements across the world.

An intrinsic aspect of its vision is to develop a generally accepted framework for corporate governance, for the accounting and audit profession, for regulation and for education embracing both the private and public sectors.

However, IFAD is aware of the disparities between the world’s countries and warns against ‘blind adoption of International Accounting Standards by unprepared countries’. The organisation is also fully aware that only when all interested and affected parties that have committed to IFAD pull together to implement policies and procedures can its goal be achieved.

‘Financial accountability and reporting laws must transcend cultural beliefs and practices and must specifically address the issues of corruption, fraud, and misrepresentation,’ explains IFAD website.