The International Federation of Accountants is right when it says that globalisation of business and commerce has highlighted the inadequacy of financial reporting and auditing in accordance with different national standards.
Decision-makers need assurance the financial information on which they base their decisions is transparent, consistent, comprehensive and comparable across national boundaries.
For that reason the launch of Forum of Firms by IFAC as explained by president Tsuguoki (Aki) Fujinuma is welcomed.
It is hardly surprising there have been differences in national auditing standards. Until recently there has been little pressure to harmonise, and guidelines and standards have responded to the different economic, market and regulatory circumstances in different countries.
But since the World Bank criticised the inconsistent application of accounting standards, it is clear the role of auditors and standards would have to be improved.
IFAC has a role in updating – and then keeping current – its canon of standards which have lagged behind work done by many national standard setters. But that is only part of the story.
Having excellent standards of any sort is only half the story, ensuring those standards are complied with is another matter.
IFAC says that part of the forum’s global quality standard is likely to include having audit policies and a methodology for conducting transnational audits in accordance with international standards of auditing and equally importantly, complying with the IFAC Code of Ethics.
The real problem which auditors and regulators think IFAC will struggle with is dealing with disparate business culture across the globe. For instance, in the UK, management of any company would expect to be challenged by the auditor on, say, the level of provision for bad debt. But in some countries such a challenge would be seen as culturally unacceptable, In other words how the forum’s global quality standard is likely to work out in practice seems unclear. However much IFAC works at changing and improving the standards, changing cultural attitudes may not be desirable, never mind achievable.
- Peter Williams is a freelance writer and a director of Kato
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