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Statement of Membership Obligations IFAC. Seminar IFAC Compliance Program ICARM Skopje, 23 April 2009 Paul F.M. Hurks RA (Royal NIVRA). About IFAC. Foundation 1977, New York City Increasing recognition of IFAC’s work by international organizations

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statement of membership obligations ifac
Statement of Membership Obligations IFAC

Seminar IFAC Compliance Program


Skopje, 23 April 2009

Paul F.M. Hurks RA (Royal NIVRA)

about ifac
About IFAC
  • Foundation 1977, New York City
  • Increasing recognition of IFAC’s work by international organizations
  • Expanding network of 160 member bodies in 120 countries, representing 2.5 million accountants
  • Membership: full, associate
  • Organization: Council, Board, Standard Setting Boards, Committees, Staff (50)


mission ifac
Mission IFAC

To serve the public interest, strengthen the worldwide accountancy profession and contribute to the development of strong international economies

  • Globilization & Public interest
  • Enhancing economic growth & wealth
strategy ifac
Strategy IFAC
  • Establishing and promoting adherence to high quality comprehensive set of standards on auditing, ethics, education, and public sector financial reporting

(adoption & implementation)

  • Furthering international convergence for transparent financial markets (harmonization is key issue for the profession)
  • Speaking out on public policy issues
  • Education provides foundation (life long learning)
statement of membership obligations ifac1
Statement of Membership Obligations IFAC

IFAC Compliance Program:

  • SMO 1 Quality Assurance
  • SMO 2 Education Standards
  • SMO 3 Auditing & Assurance Standards
  • SMO 4 Standards of Ethics
  • SMO 5 Public Sector Accounting Standards
  • SMO 6 Investigation & Discipline
  • SMO 7 IFRS
smos introduction
SMOs Introduction
  • Benchmark to current and potential IFAC members
  • Support the development of high quality accountancy profession
  • Covering IFAC & IASB pronouncements
  • Basis of IFAC Member Body Compliance Program (CAP)
  • Ongoing self assessment for members and associates
  • Bold & grey lettering (obligations & explanations)
best endeavours
Best Endeavours
  • Ongoing self assessment towards compliance

(monitoring & evaluation)

  • Measurement at country level (member body, government, regulators): encouragement
  • Relevance (sectors)
  • Departure with reason
  • Considering projects and initiatives underway: action plans & progress
  • Sanctions: suspension or expulsion
smo 1 quality assurance
SMO 1 Quality Assurance
  • Implementation of a Quality Assurance Review Program (= QARP) for Audit Engagements (AE) of Financial Statements (FS)
  • Obligations on 3 levels:
    • Member body (MB): review program: SMO1
    • Firm (including a sole practitioner): ISQC1 (license)
    • Engagement (audit professional, member): ISA 220 (qualification)
smo 1 qarp
  • Mandatory QARP for AE of FS of listed entities (minimum)
  • Mandatory establishing and publishing criteria for all other AE of FS
  • Mandatory including those other AE meeting the criteria in the QARP
  • Best endeavours to encourage and assist other responsible authorities to follow SMO1, when applicable (government, regulators)
  • When scope is narrower, member body should establish QARP for lacking aspects in existing QARPs
smo 1 control standards
SMO 1 Control Standards
  • Mandatory establishing and publishing quality control (QC) standards and guidance requiring firms to implement a system compliant with ISQC1 (for audit professionals: ISA 220)
  • Firms are responsible for implementing policies and procedures
  • MB is responsible for a QARP that monitors compliance with those policies and procedures
smo 1 quality control guidance
SMO 1 Quality Control Guidance
  • Mandatory program tot assist members to:
    • Understand objectives
    • Implement and maintain an appropriate system
  • Guidelines for
    • Continuous Professional Development (CPD)
    • Inspection Programs
smo 1 design a qarp
SMO 1 Design a QARP
  • Subject of a QARP can be chosen
    • a firm
    • a partner
  • Criteria independent of the choice
    • adequate system on firm level
    • compliance at AE level
    • ref professional standards and regulatory and legal requirements
  • MB should publish scope, design, procedures of QARP and review teams
smo 1 review cycle
SMO 1 Review Cycle
  • Selection
    • Cycle approach
    • Risk based approach
  • Cycle approach
    • Maximum of three years
    • Consider quality and effectiveness of internal inspection program
  • Risk based approach
    • Selection based on risk factors (listed entities, PIE, review results)
    • Reasonable frequency, even if not selected on risk based approach
smo 1 review team rt
SMO 1 Review Team (RT)
  • RT guidelines and procedures must be published
  • RT Procedures
    • Assessment of the system of QC for listed entities
    • Review of QC policies and procedures & working paper review and discussions with staff to evaluate
      • Compliance with the system
      • Compliance with other regulatory and legal requirements
  • Working paper review includes
    • Existence & Effectiveness QC system
    • Compliance with regulatory and legal requirements
    • Evidence documented
    • Appropriateness of auditor’s report
smo 1 rt documentation
SMO 1 RT Documentation
  • Sufficient documentation
    • Evidence review report results
    • Evidence that review is carried out in accordance with MB guidelines
  • Procedures to retain documentation
    • Long enough to allow MB or Oversight Body do oversight of the process
smo 1 rt members
SMO 1 RT Members
  • Skills and Competence
    • education, experience, QC-review training
  • Size RT
  • RT Leader
    • supervision, communication, reporting
  • Ethical requirements
    • Code of Ethics + national, independence, no reciprocal peers
  • Confidentiality
    • Exemption for firm members, Code of Ethics + national
smo 1 reporting
SMO 1 Reporting
  • Written review report to firm/partner of each assignment including:
    • Guidance utilized
    • Comments on system and system compliance
    • Comments on partner’s compliance to the system
    • Reasons for negative conclusions and recommendations
  • Timely written response to recommendations and conclusions
  • MB annual report summarizing results and make available for authorities
smo 1 correction discipline
SMO 1 Correction & Discipline
  • MB requires correction to member’s system, policies and procedures if not compliant
  • MB should take disciplinary actions with failing members
  • MB must be clear about linkage between conclusions and corrections
    • CPD, system, engagements, persons, number of peers
    • reprimands, fines, suspension, expulsion, publication
smo 2 education standards iess
SMO 2 Education Standards (IESs)
  • IAESB provides consistent global framework of education
  • Promotes convergence in accountancy education processes and in application of technical and practice standards
  • Supports greater mobility of accountants by portability of qualifications
  • Contributes to co-operation among member bodies
  • Develops guidance for education and development of professional accountants and accounting technicians
  • IAESB members include practicing accountants, academics, representatives from business and the public
  • Transparency in standard-setting process (observers from international accounting academic community and UNCTAD)
  • Different approaches around the world
smo 2 education standards iess1
SMO 2 Education Standards (IESs)

SMO 2 – comply with and promote IFAC IES

  • IES 1 – entry requirements
  • IES 2 – content of professional education
  • IES 3 – professional skills
  • IES 4 – values, ethics and attitudes
  • IES 5 – practical experience
  • IES 6 – assessment of professional competence
  • IES 7 – continuous professional development (CPD)
  • IES 8 – competences for audit professionals
smo 2 framework iess
SMO 2 Framework IESs
  • Framework
    • objectives and operating procedures
    • new ED
  • Introduction
    • purpose, scope and development of IES
    • discussion about way standards may be adopted and applied
smo 2 ies 1
  • Requirements for entry to a program of professional accounting education and practical experience
  • Aim to ensure students have background to have reasonable chance of achieving success
smo 2 ies 2
  • Prescribes knowledge and competences candidates require to function as a professional accountant
    • Accounting, finance and related knowledge
    • Organizational and business knowledge
    • IT knowledge and competences
  • Degree or professional qualification
  • At least two years full time study
smo 2 ies 3
  • Prescribes the mix of professional skills required
    • Intellectual skills
    • Technical and functional skills
    • Personal skills
    • Interpersonal and communication skills
    • Organizational and business management skills
  • General education helps to develop these skills
smo 2 ies 4
  • Prescribes the professional values, ethics and attitudes required
  • Prescribes minimum subject areas
  • Acknowledge different approaches will reflect national and cultural environment
smo 2 ies 5
  • Aims to ensure candidates have the necessary practical experience to become a professional accountant
  • Minimum of 3 years’ practical experience
  • Guidance of experienced professional accountant
  • Record of experience and review
smo 2 ies 6
  • Final assessment before qualification as a professional accountant
  • Test of theoretical knowledge and practical application of knowledge
  • Reliable and valid
smo 2 ies 7
  • Mandatory CPD for all professional accountants
  • Foster commitment to lifelong learning
  • Facilitate access to CPD opportunities
  • Establish benchmarks for development and competence of professional accountants
  • Monitor and enforce CPD
  • 120 hours, three year rolling period
  • Three approaches:
    • Input approach
    • Output approach
    • Combination approach
smo 2 ies 8
  • Audit of historic financial information
  • All IES1-7 and additional advanced knowledge
  • Graduate level
  • Audit specific skills
  • Application of ethics in an audit context
  • Specific work experience
smo 3 iaasb standards
SMO 3 IAASB Standards
  • Assurance Framework
  • Standards & Practice Statements
  • Timely and accurate translation and dissemination
  • Responsibility for adoption and implementation
    • Adoption in national standards or convergence between national standards and IAASB Standards (encouragement, persuasion)
    • Assistance with implementation (promotion, guidelines)
smo 4 ethics standards
SMO 4 Ethics Standards
  • IESBA Standards: Code of Ethics
  • MB should avoid less stringent standards, unless it is prohibited by law or regulation
  • Timely and accurate translation and dissemination
  • Responsibility for adoption and implementation
    • Adoption in national standards or convergence between national standards and IESBA Standards (encouragement, persuasion)
    • Assistance with implementation (promotion, guidelines)
smo 5 ipsasb standards
SMO 5 IPSASB-Standards
  • MB should notify members of all IPSASs: International Public Sector Accounting Standards
    • guidelines, studies, papers)
  • Timely and accurate translation and dissemination
  • Responsibility for adoption and implementation
    • Adoption in national standards or convergence between national standards and IPSASB Standards (encouragement, persuasion)
    • Assistance with implementation (promotion, guidelines)
smo 6 investigation discipline
SMO 6 Investigation & Discipline
  • MB should provide rules for I&D against breaches of professional standards and rules
  • Both for members & firms
  • Misconduct
    • criminal activity, disrepute profession, breaches of standards and ethics, professional negligence (cumulative), unsatisfactory work
smo 6 investigation discipline1
SMO 6 Investigation & Discipline
  • Sanctions based on a just and effective investigative and disciplinary regime (by MB, law, regulator):
    • Reprimand
    • Loss or restriction of practice rights
    • Fine / payment of costs
    • Loss of professional title (designation)
    • Exclusion from membership
smo 6 investigation discipline2
SMO 6 Investigation & Discipline
  • Provision of information and guidance for members
  • Liaison with outside bodies
  • Investigative powers & processes
  • Disciplinary process
  • Rights of representation & appeal
  • Administrative processes
smo 7 ifrs
  • MB support the work of IASB by notifying members of every IFRS
  • Timely and accurate translation and dissemination
  • Responsibility for adoption and implementation
    • Adoption in national standards or convergence between national standards and IAASB Standards (encouragement, persuasion)
    • Assistance with implementation (promotion, guidelines)
icarm policy
ICARM Policy

Compliance program:

  • Questionnaires Part I & II
  • Action Plan (7 SMOs)
  • Policy Directives (IFAC CAP)
  • Membership application (associate)

To be achieved before 31 May 2010