'Ethical behaviour should be expected, demanded and delivered'
With Sri Lanka's convergence to International Financial Reporting
Standards (IFRS), renowned Australian financial reporting expert Dianne
Azoor-Hughes, who was in Sri Lanka recently, has stressed for a more
proactive role to be played by the Institute of Chartered Accountants of
Sri Lanka (CA Sri Lanka), which is the country's sole authority in
formulating Accounting and Auditing Standards.
Azoor-Hughes |
Azoor-Hughes who commands over twenty-five years' experience in
financial reporting, including audit, academia, technical and standard
setting also serves as the Technical Standards Partner / Executive
Director for financial reporting at Baker Tilly Pitcher Partners
Melbourne and was also the guest speaker at a seminar titled 'The future
of audit and financial reporting' organized by CA Sri Lanka.
In a question and answer session, Ms. Azoor-Hughes noted that the
real challenge was to put theory into practice and advised the Institute
to actively participate in and monitor proposals as soon as they are
introduced rather than waiting until they reach exposure draft stage.
Question: How would you define the future of audit and
accounting on a Sri Lankan context?
Answer: All jurisdictions are experiencing increased emphasis
on international standards for financial reporting, audit and ethics.
Sri Lanka has already adopted international standards and therefore I
expect it will continue to be aligned with international best practice.
Q: When it comes to transparency, accountability, how can Sri
Lanka be rated with regard to adhering to the strictest financial
reporting standards?
Answer: This depends on the findings of the Sri Lanka
regulatory oversight - the frameworks appear to be in place and
therefore the results of monitoring activity will demonstrate how
effectively they are adopted in practice.
Q: At a time when transparency and accountability lacks in
society, what are the biggest obstacles in ensuring that the accounting
and auditing are followed to the strictest rule?
Answer: Attitudes towards ethical behaviour must be of the
highest professional standard in all aspects of business and business
regulation. Ethical behaviour should be expected, demanded and
delivered.
Q: What can a developing nation such as Sri Lanka do to ensure
that we adhere to these standards in the strictest form?
Answer: The independence and funding of regulatory oversight
should be sufficient to ensure that monitoring activity is driven by
appropriate motives, being those to continually improve the quality of
financial reporting.
If the appropriate accounting framework is required to be followed
and enforced through appropriate regulatory oversight, then corporate
transparency and accountability will follow as a consequence.
Q: What are your thoughts on Sri Lanka's convergence to the
International Financial Reporting Standards this year?
Answer: I do not have any personal knowledge of how the
convergence process operated in Sri Lanka, or to what extent the exact
requirements IFRS have been adopted in Sri Lanka.
However, the context for financial reporting under IFRS is economic
performance rather than historical cost performance, which brings about
significant differences for users who wish to understand or interpret
the information provided.
I expect that the Sri Lanka business community is starting to climb
the steep learning curve that other jurisdictions going through this
process, are experiencing.
Q: What should the Institute of Chartered Accountants of Sri
Lanka, which is the sole Accounting and Auditing standards setting
authority in Sri Lanka do to ensure that this convergence remains
proactive and all companies adhere to this convergence?
Answer: The provision of ongoing training forums for the
resolution of issues arising is critical. While IFRS may be trained at a
theoretical level, the real challenges present when the theory is put
into practice. Further, this task is never complete as new changes are
being debated even as we speak.
The Institute needs to actively participate in and monitor proposals
as soon as they are introduced rather than waiting until they reach
exposure draft stage, as much of the thinking is already
well-established when the ED is being drafted.
Q: How important is it for Sri Lanka to keep up with global
audit and accounting changes?
Answer: The answer to this question depends on the extent of
continuing global support for the adoption of international audit and
accounting standards globally - if we assume that the US WILL adopt IFRS,
that emerging economies WILL adopt IFRS and that the European Commission
do NOT introduce dramatic changes to the audit market, it will be
critical for Sri Lanka to keep up with global changes. However, there
are still many hurdles before we have full consensus.
Q: Failure to adapt to global financial reporting standards,
will affect us how?
Answer: Given the uncertainty described in paragraph 7 and the
relative strength of the Sri Lanka economy, the impact is unlikely to be
serious in the short-term. However, the extent to which Sri Lanka needs
the support of major players such as the World Bank, IOSCO and the
Financial Stability Board, the importance which the major players
ascribe to adoption of global financial reporting standards may be an
important determinant to ensuring their continued support.
Q: There have been furious debates about the relevance of
information now being presented in financial reports and increasing
levels of debate on the so-called reforms proposed in exposure drafts.
Could you elaborate on this please.
Answer: There has been mounting vocal debate at numerous
forums - my personal experience includes roundtables held in Australia
to discuss IASB proposals in exposure drafts for revenue from contracts
with customers and leases; presentations at the third annual AOSSG
meeting held in Melbourne last year; various presentations at the last
IFAC World Congress of Accountants held in Kuala Lumpur in October 2010.
The UK FRC has also issued commentary on various aspects of complexity.
Q: What sort of an influence does the G20 have on the
international financial reporting agenda and what sort of an impact do
countries like Sri Lanka face from influences such as these?
Answer: The G20 is able to impress political pressure on the
timeliness of new developments.
At the peak of the GFC we saw the G20 effectively force the IASB to
take timely action to modify requirements in IAS 39 which were
considered to be causing reporting distress.
It also provided comment on project priority to effectively direct
how the IASB managed its resources. As Sri Lanka adopts/accepts global
developments, like other jurisdictions, they are effectively forced to
accept the G20 agenda priorities.
Q: The focus on financial reporting by listed companies has
caused the development of rigorous global financial reporting standards
for privately owned entities to be neglected, even though these entities
are the backbones of business in many economies. What sort of
recommendations do you make to ensure these entities are not neglected?
Answer: We are continuing to lobby on this topic as there is
still inadequate attention given to issues relevant to growing,
privately owned business.
The priority in developing IFRS for SMEs was to simplify the
accounting in IFRS, rather than to address the needs for financial
information in SMEs.
Consequently, the reduced complexity is not based on the researched
needs of users, but rather the elimination of complexity.
The resulting framework produces financial information that is not
consistent with the financial information needs of our SME clients - an
example is the mandatory amortization of goodwill over a ten-year
period, which is inconsistent with the perceived increasing value of
goodwill in a growing business.
Q: What are the biggest challenges we face right now, both
locally and internationally and how do you recommend we fight these
challenges?
Answer: The major challenge is to ensure growing businesses
adopt good governance practices and use reliable information for
decision-making, so that they can continue to grow and thrive.
The area of governance for growing businesses and development of an
appropriate reporting framework requires serious consideration.
Dianne Azoor-Hughes Profile: Azoor-Hughes commands over twenty-five
years' experience in financial reporting, including audit, academia,
technical and standard setting. She consults with the Australian
Securities and Investments Commission, Australian Securities Exchange,
Treasury, the Financial Reporting Council, Australian Accounting
Standards Board, Auditing and Assurance Standards Board, Accounting
Professional and Ethical Standards Board and the Accounting Bodies on a
regular basis and has gained recognition as a leading spokesperson on
financial reporting issues. She has also been a board member of the
Australian and Auditing and Assurance Standards Board since appointment
in 2004. |