IFAC: Strong support for international accounting standards

The International Standards: 2019 Global Status Report covers 173 IFAC-member organizations and the 130 jurisdictions in which they operate, making it the first-ever baseline for global adoption status. “Since there are no international laws requiring nations to adopt and implement international standards, support from IFAC’s member organizations for these dual objectives is critically important to progress,” said IFAC CEO Kevin Dancey. “This new report reinforces the impact of standards in driving transparency and creating a common language for high-quality financial information.”

The IFAC report in its entirety provides a jurisdiction-by-jurisdiction chart spanning five regions of the world: Africa, Americas and the Caribbean, Asia-Pacific, Europe, and the Middle East. The chart provides a global look at the adoption status of the quality assurance review system, as well as the adoption status of the International Education Standards (IES) and the International Standards on Auditing (ISA). It further takes a jurisdiction-by-jurisdiction look at the adoption status of the International Code of Ethics and the International Public Sector Accounting Standards (IPSAS), as well as the adoption of investigation and discipline systems and International Financial Reporting Standards (IFRS).

One key finding from the report: 90 percent of IFAC-member jurisdictions use technical standards applicable in financial statements and audits—such as International Standards on Auditing ISA and IFRS. Complementing this is that 90 percent of IFAC-member jurisdictions also use the International Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants (IESBA).

“Worldwide, developing quality assurance systems has been an important element of the global regulatory agenda and restoring public confidence in audited financial information,” the report noted. Jurisdictions show a higher tendency to establish and operationalize a quality assurance review system that completely meets international best practices than an investigation and discipline that does the same (50 percent vs. 22 percent), even though more jurisdictions have an investigation and discipline mechanism in place than a quality assurance system (99 percent vs. 86 percent).

“Investigation and discipline mechanisms are equally vital for sustainable professional accountancy organizations (PAOs) and ensuring public trust in the accountancy profession,” IFAC said, but with only 22 percent of countries fully following IFAC requirements for investigation and discipline systems, “further attention and support are needed.”

The report also “shines a light on the important and often untold story of how standards are adopted and implemented—a process that can be as complex as developing a standard,” Dancey said. According to the report, national standard setters adopt the international accountancy standards by directly referring to the standards or by gradually eliminating differences to better align national standards with international ones.”

ISA and IFRS (80 percent and 79 percent, respectively) have the highest degrees of adoption by direct reference. In these cases, the standards are mentioned directly in legislation or the national standard setter adopts the standards as issued by the IAASB and IASB with no modifications.

Positive IFAC member impact

The report further shows a positive trend in international standards’ usage where IFAC member organizations have at least some role in the standard-setting and regulatory environment. Member organizations usually share adoption responsibility with multiple stakeholders, including government, audit oversight authorities, financial-sector regulators, and other PAOs.

The report also noted a “positive trend” between involvement of IFAC members in the adoption of standards and the usage of those standards. Member organizations are a “driving force behind adoption and implementation of both international standards and best practices,” even where they don’t have any direct responsibility for adoption, IFAC said.

“IFAC member organizations are key collaborators, and advisors and are instrumental in ensuring that the most current international standards and systems are applied whenever possible,” the report said. IFAC further cited several ways that member organizations advocating for standards’ adoption, including:

• Providing technical support in drafting national requirements;
• Establishing ongoing monitoring mechanisms for new and amended standards to ensure applicability in the local context;
• Promoting regulatory consistency in jurisdictions when appropriate;
• Participating in international standard setting through the public consultation process;
• Working to eliminate any gaps between national and international standards, including developing comparisons;
• Facilitating translations and reproductions of standards and guidance materials into local languages.
• Establishing membership requirements that mirror international best practices.

According to the report, the IES have the highest rate of partial adoption. “In these cases, partnerships and development assistance are essential in strengthening accountancy education,” IFAC said.

ISA, International Code of Ethics, and IFRS all have strong usage rates: 97 percent, 94 percent, and 92 percent, respectively. “To achieve, and maintain, this high adoption rate, IFAC member organizations have established monitoring processes for new and revised standards and keep stakeholders informed,” IFAC said.

Various maturity levels

The report also discusses organizations’ pace of progress in adopting and implementing international standards and best practices. According to the report, 61 percent (105) of IFAC member organizations substantially carry out or have formed strong processes for adoption and implementation support in all areas. “These include a range of actions, from recently aligning national standards and/or procedures (quality assurance and investigation and discipline) with international ones to having well-known and established, successful processes with robust implementation support available for their members,” IFAC said.

Thirty-six percent (63) of IFAC member organizations at a slower pace of progress have plans in place to address and enhance their activities and services in line with IFAC requirements, and five IFAC member organizations are resetting adoption and implementation plans where significant delays have occurred.

“International standards have come a long way since 2000 when there was little to no global adoption,” Dancey said. “While there is always more to be done, IFAC member organizations play a vital role in ensuring the successful implementation of international accountancy standards, which ultimately help drive sustainable economic growth and financial market stability in their respective jurisdictions.”