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Challenges Faced by the Accounting Profession in Developing Nations

Tony HegartyChief Financial Management OfficerHead of Financial Management Sector BoardThe World Bank

Mexico City, MexicoJune 2007

                                

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The World Bank GroupWorking for a world free of poverty

                                

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Poverty Reduction: Global Challenge

1 billion people live on less than $1 a day

2 billion do not have access to clean drinking water

200,000 children under 5 die each week of treatable and preventable diseases

Globally, 1 child in 4 does not finish primary school, and in Africa almost 50% do not

70% of the world’s poor are in Middle Income Countries

                                

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Millennium Development Goals

Endorsed by 189 countries at the UN Millennium General Assembly in Sept 2000.

Aim to halve the proportion of people in extreme poverty by 2015.

Set targets for reductions in poverty, improvements in health and education, and protection of the environment.

                                

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                                Developed countries must boost foreign aid to the developing world, remove barriers to the exports of developing countries, encourage private investment, and make the benefits of science and technology available to all the world's peoples.

Developing countries, meanwhile, must put in place the right economic policies, work to improve governance, invest in their people, and create an enabling environment that is conducive to growth and development.

“The Millennium Development Goals offer concrete targets for everyone to rally around in the global fight against poverty. But reaching the goals will require action from both developed and developing countries.”

Jeff Gutman VP, OPCS

The World Bank

Millennium Development Goals

                                

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Gleneagles Summit, Scotland: July 2005

                                

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Governance, Poverty Reduction, Financial Management

Formal Oversight Institutions

• Independent, effective judiciary

• Legislative oversight (PACs, PECs)

• Independent oversight institutions (SAI)

• Global initiatives: UN, OECD Convention, anti-money laundering

Political Accountability

• Political competition, broad-based political parties

• Transparency & regulation of party financing

• Disclosure of parliamentary votes Civil Society & Media

• Freedom of press, FOI• Civil society watchdogs• Report cards, client surveys

Decentralization and Local Participation

• Decentralization with accountability

• Community Driven Development (CDD)

• Oversight by parent-teacher associations & user groups

• Beneficiary participation in projects

Private Sector Interface

• Streamlined regulation• Public-private dialogue• Extractive Industry

Transparency • Corporate governance• Collective business

associations

Effective Public Sector Management

• Ethical leadership• Public finance management &

procurement• Civil service meritocracy

& adequate pay• Service delivery and regulatory

agencies in sectors

Outcomes: Services,

Regulations, CorruptionCitizens/Firms

Citizens/Firms

Citiz

ens/Firm

s Citizens/Firms

                                

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GAC Consultations (Nov. 2006 – Jan. 2007)

AFRBurkina Faso, Botswana, Cameroon,

Kenya, Mauritania, Mozambique, Rwanda, Senegal, Tanzania, Uganda.

Planned: Congo-Brazzaville

LACArgentina, Bolivia,

Dominican Republic, El Salvador, Guatemala,

Mexico, IACC

EAPAustralia, Cambodia,

China, Japan, Indonesia, Lao PDR, Mongolia,

New Zealand, Philippines,

Vietnam, Thailand

MNAEgypt, Morocco, Yemen

ECAAlbania, Bulgaria, Georgia, Moldova,

Russia

EuropeBrussels, the Hague,

London, Madrid, OECD, Paris, Rome, Stockholm

North AmericaOttawa, Washington DC

(IMF, MDBs, US Government, CSOs,

private sector, unions)

SARBangladesh, India, Nepal

                                

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Governance & Anticorruption (GAC)

Project Level

Combating corruption in

World Bank Group operations

Country Level

Deepening support to countries to

strengthen governance

Global Level

Working with development

partners, sharing experience & addressing

transnational issues

Key Elements of World Bank Strategy

                                

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Governance, Poverty Reduction, Financial Management

Improved FM capacity is at the core of good governance and lies at the heart of achieving the MDGs/poverty reduction: ensuring that public and donor resources are used efficiently, effectively and transparently for intended purposes.

                                

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Diagnosis of Country PFM Systems?

A CFAA a diagnostic tool to enhance the knowledge of PFM in client countries.

It supports fiduciary responsibilities by identifying the strengths/weaknesses of PFM so that potential risks to funds can be assessed/managed.

It supports development objectives that lead to the design and implementation of capacity building programs (Action Plan) to improve a country’s PFM

diagnostic tool

fiduciary responsibilities

Action Plan

development objectives

                                

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PFM Diagnostics Completed: over 100

AFR

SAR

EAP

ECA

MNA

LCR

                                

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PFM Diagnostics: Emerging Cross-cutting Issues

Incomplete Budget Information Inadequate Accounting Systems Obsolete Legal Framework Ineffective Internal and External Audit Poor dissemination of PFM information Shortage of qualified PFM Professionals Barriers to IFMIS

Mostly due to weak capacityMostly due to weak capacity

                                

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Foreignexchange

crisis Stock Market crash

Corporate bankruptcy Bank

failure

PropertyMarket

collapse Economiccrisis

International Financial Crises

Increasepoverty

                                

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International Response: Standards & Codes

The World Bank

Policy Transparency Data Transparency Fiscal Transparency Monetary and Financial Policy Transparency

Financial Sector Regulation & Supervision Banking Supervision Securities Regulation Insurance Supervision Payments Systems Anti-money laundering

Market Integrity Corporate Governance Insolvency and Creditor Rights Accounting Auditing

                                

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What is an Accounting and Auditing ROSC?

Evaluates strengths/weaknesses of institutional frameworks

Assesses comparability of national with IFRS/IAS and ISA

Examines compliance with standards in practice

Supports the preparation of development action plan for enhancing accounting and auditing standards and practices

strengths/weaknesses

comparability

compliance

development action plan

                                

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ROSC A&A Reviews Completed: 62

AFR

SAR

EAP

ECA

MNA

LCR

                                

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ROSC A&A Reviews in Latin America & Caribbean: 10

Chile

Colombia

Dominican Republic

EcuadorEl Salvador

Paraguay

PeruUruguay

Jamaica

Mexico

Argentina Brazil

Honduras

Guatemala

+ 4 being finalized…

                                

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ROSC A&A: Emerging Cross-cutting Issues

Outdated legal frameworks Weak accountancy professions Widespread non-compliance with standards Weak monitoring/enforcement mechanisms Lack of access to international standards Inadequate training and curricula Non-availability of implementation guidance and

practice manuals

Mostly due to weak capacityMostly due to weak capacity

                                

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Fromdiagnostics to

capacity developmen

t

How do we get there?

From Diagnostics to Implementation

                                

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Capacity Development: Follow-up

Government

Country Stakeholders

Donors

World Bank

Involves Collaboration/Partnership

                                

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Integrated Capacity Development Plan(Example: Country Action Plan)

Education & Training Accountancy

ProfessionAccounting Standards & Actual Practices

Auditing Standards

& Actual Practices

Statutory Framework

Oversight, Monitoring & Enforcement of Standards

                                

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Guiding Principles for Capacity Development

Country leadership and ownership

Tailor-made capacity development design

Comprehensive programme design and implementation

Coherent and coordinated donor support

                                

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Building FM Capacity: Harmonization and Global PartnershipsDonors are harmonizing fiduciary requirements and are

aligning those with strengthened country PFM systems MDB OECD-DAC JV-PFM

Donors are supporting FM capacity building initiatives in various countriesDonors are supporting international FM organizations:

IFAC INTOSAI IASB

IFAC Developing Nations Committee

                                

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Building FM Capacity: How Can the Accountancy Profession Contribute?

Complying with IFAC membership obligations (SMOs)

Supporting IFAC’s Developing Nations Committee

Providing advise/technical support to governments/donors

Training/Certification of more accountants (levels)

Addressing specific needs of the public sector

Ensuring compliance with accounting/auditing standards

                                

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Summary and Conclusion

Poverty reduction is primary global development challenge

MDGs created a powerful compact for fighting poverty. Reaching them will require accelerated and concerted actions from developed and developing countries

Improving governance and financial management

FM capacity development

Partnership required in support of country led strategy