Challenges Faced by the Accounting Profession in Developing

Challenges Faced by the Accounting Profession in Developing Nations Mexico City, Mexico June 2007 Tony Hegarty Chief Financial Management Officer Head of Financial Management Sector Board The World Bank 1

The World Bank Group Working for a world free of poverty 2

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 3

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. 4

Millennium Development Goals “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 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. 5

Gleneagles Summit, Scotland: July 2005 6

Governance, Poverty Reduction, Financial Management Citizens/Firms • • Formal Oversight Institutions Independent, effective judiciary Legislative oversight (PACs, PECs) Independent oversight institutions (SAI) Global initiatives: UN, OECD Convention, anti-money laundering • • Effective Public Sector Management Ethical leadership Public finance management & procurement Civil service meritocracy & adequate pay Service delivery and regulatory agencies in sectors Decentralization and Local Participation • Decentralization with accountability • Community Driven Development (CDD) • Oversight by parent-teacher associations & user groups • Beneficiary participation in projects Citizens/Firms Civil Society & Media • Freedom of press, FOI • Civil society watchdogs • Report cards, client surveys • • • Citizens/Firms Political Accountability • Political competition, broadbased political parties • Transparency & regulation of party financing • Disclosure of parliamentary votes Private Sector Interface Streamlined regulation Public-private dialogue Extractive Industry Transparency Corporate governance Collective business associations Outcomes: Services, Regulations, Corruption 7

GAC Consultations (Nov. 2006 – Jan. 2007) Europe Brussels, the Hague, London, Madrid, OECD, Paris, Rome, Stockholm MNA Egypt, Morocco, Yemen North America Albania, Bulgaria, Georgia, Moldova, Russia EAP Ottawa, Washington DC (IMF, MDBs, US Government, CSOs, private sector, unions) LAC Argentina, Bolivia, Dominican Republic, El Salvador, Guatemala, Mexico, IACC ECA SAR Bangladesh, India, Nepal AFR Burkina Faso, Botswana, Cameroon, Kenya, Mauritania, Mozambique, Rwanda, Senegal, Tanzania, Uganda. Planned: Congo-Brazzaville Australia, Cambodia, China, Japan, Indonesia, Lao PDR, Mongolia, New Zealand, Philippines, Vietnam, Thailand 8

Governance & Anticorruption (GAC) Key Elements of World Bank Strategy Global Level Country Level Deepening support to countries to strengthen governance Project Level Combating corruption in World Bank Group operations Working with development partners, sharing experience & addressing transnational issues 9

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. 10

Diagnosis of Country PFM Systems? n A CFAA a diagnostic tool to enhance the knowledge of PFM in client countries. n It supports fiduciary responsibilities by identifying the strengths/weaknesses of PFM so that potential risks to funds can be assessed/managed. n It supports development objectives that lead to the design and implementation of capacity building programs (Action Plan) to improve a country’s PFM Action Plan 11

PFM Diagnostics Completed: over 100 ECA EAP MNA LCR SAR AFR 12

PFM Diagnostics: Emerging Cross-cutting Issues n Incomplete Budget Information n Inadequate Accounting Systems n Obsolete Legal Framework n Ineffective Internal and External Audit n Poor dissemination of PFM information n Shortage of qualified PFM Professionals n Barriers to IFMIS Mostly due to weak capacity 13

International Financial Crises Foreign exchange crisis Stock Market crash Corporate bankruptcy Bank failure Property Market collapse Economic crisis Increase poverty 14

International Response: Standards & Codes Policy Transparency § § Fiscal Transparency § The World Bank Data 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 15

What is an Accounting and Auditing ROSC? n Evaluates strengths/weaknesses of institutional frameworks n Assesses comparability of national with IFRS/IAS and ISA n Examines compliance with standards in practice n Supports the preparation of development action plan for enhancing accounting and auditing standards and practices 16

ROSC A&A Reviews Completed: 62 ECA EAP MNA LCR SAR AFR 17

ROSC A&A Reviews in Latin America & Caribbean: 10 + 4 being finalized… Uruguay Peru Chile Colombia Paraguay Argentina Brazil Guatemala Honduras Mexico Dominican Republic Jamaica El Salvador Ecuador 18

ROSC A&A: Emerging Cross-cutting Issues n n Outdated legal frameworks Weak accountancy professions n Widespread non-compliance with standards n Weak monitoring/enforcement mechanisms n Lack of access to international standards n Inadequate training and curricula n Non-availability of implementation guidance and practice manuals Mostly due to weak capacity 19

From Diagnostics to Implementation From diagnostics to capacity development How do we get there? 20

Capacity Development: Follow-up Involves Collaboration/Partnership Government Country Stakeholders Donors World Bank 21

Integrated Capacity Development Plan (Example: Country Action Plan) Statutory Framework Education & Training Accountancy Profession Accounting Standards & Actual Practices Auditing Standards & Actual Practices Oversight, Monitoring & Enforcement of Standards 22

Guiding Principles for Capacity Development Country leadership and ownership Tailor-made capacity development design Comprehensive programme design and implementation Coherent and coordinated donor support 23

Building FM Capacity: Harmonization and Global Partnerships Donors are harmonizing fiduciary requirements and are aligning those with strengthened country PFM systems Ø Ø MDB OECD-DAC JV-PFM Donors are supporting FM capacity building initiatives in various countries Donors are supporting international FM organizations: Ø Ø Ø IFAC INTOSAI IASB IFAC Developing Nations Committee 24

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 25

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 26