IFAC CEO Choudhury sees accountants making an impact globally
International Federation of Accountants CEO Fayezul Choudhury is bringing the influence of accountants to the fore to help solve problems around the world.
“IFAC is dedicated to the proposition that the global accountancy profession advances economies and strengthens organizations,” he told Accounting Today. “To try and fulfill that pretty important challenge of being the voice of the global accountancy profession, there are a number of things that we try to do. One is to support our constituents. You have accountants in business, in the public sector, in small and medium-size practices, and in large international audit networks. We try to understand what some of the issues affecting them are.”
One of the main issues is international standards. “In supporting our constituents, the thing that underpins that is global standards,” said Choudhury. “To be a member of IFAC, you have to agree to comply with our statement of member obligations, which means adopting and implementing global standards. We support some independent standard-setting boards, and those standards are really the backbone of the accounting profession. No matter what the pushback might be at this particular point in time, I personally hope that global integration is an unstoppable trend.”
IFAC also focuses on developing the accounting profession in developing countries around the world. “The emerging economies of today will hopefully be the economic powerhouses of tomorrow or the day after,” said Choudhury. “To build a strong profession that actually supports organizations and advances those economies is extremely important.”
IFAC also does a great deal of advocacy work on behalf of the accounting profession. “We do believe that we are a public interest organization, not just because of the work that we do, but as a grouping of professionals in any particular country, we should be an influential voice,” said Choudhury. “By and large accountants are educated. They’re productive members of society. They hopefully contribute to society in broader ways beyond their day jobs. Accountants and the profession in any particular country and globally we believe have a responsibility to speak out on public interest issues, particularly where accountants have a role to play in those issues.”
One of the issues on which IFAC has been speaking out is regulation vs. deregulation. “We have a trend globally towards deregulation,” said Choudhury. “We don’t necessarily think that’s a bad thing because obviously we believe in regulation as a concept, to balance self-interest and public interest. But we also believe there’s a lot of anecdotal and empirical evidence to say that not all regulation has worked so we believe it’s important to be a strong and active voice in that discussion, as to how you go about creating good regulations, what we call smart regulations.”
IFAC has produced several publications on the topic and hosted a number of roundtables in the Far East and in Europe, Choudhury pointed out.
“We are not advocating for deregulation per se,” said Choudhury. “We are advocating for a smarter approach to regulation. Too often the initial intent of the regulation is not met by the regulation that’s actually written, or the regulation becomes out of date. The process should involve active collaboration with those they are regulating.”
His organization has also become more involved in the issue of public sector financial management. “The irony is that for the government to regulate the private sector to conform with very strict standards for financial reporting and financial probity, but for governments to regulate themselves and their countries’ own finances, the evidence is clear that there aren’t the same strict standards applied, primarily the lack of accrual accounting,” said Choudhury.
International Tax Issues
IFAC has also been dealing with the issue of international taxation, particularly the increasing spotlight on the low taxes paid by many multinational companies, for example, in the Organization for Economic Cooperation and Development’s project on base erosion and profit shifting, or OECD BEPS.
“Obviously there are very large discussions going on around the world about international taxation, and that is a very knotty problem, because the global fora for resolving those kinds of issues are fragile and are coming increasingly under threat as a number of significant governments move more in the direction of protecting national boundaries,” said Choudhury. “The OECD BEPS project is very encouraging in terms of providing that international forum. Lending your voice to the need is one thing, but implementing what comes out is another. We believe the accountancy profession has a very important role to play in that debate, and I do believe we are playing it.”
He pointed out that accountants are trained to understand taxes and tax law. “At one level we have the expertise to assist taxpaying entities to navigate the tax system, and to advise governments on what from a view on the ground perspective constitutes workable and effective tax regimes,” said Choudhury. “But after that it gets very complicated very quickly. What we can all agree on is that tax evasion is not acceptable, if there is a statute on the books and someone is willfully not complying with it. Where it becomes difficult is when there is a provision where you can take legal means to avoid the effect of that provision, typically what’s called a tax avoidance strategy. In some countries that is not just acceptable but good, because you are still in full compliance with the law, and no tax authority or regulator can claim otherwise. In other jurisdictions [they believe] one should look at the intent of that tax provision and encourage compliance with the intent rather than the letter. But in some ways that is counterintuitive.”
IFAC has also been involved in standards for ethics. “At one level a strong ethical code is what underpins the work of the accountant, and that’s why we view the ethics standards that the independent standard-setting board produces as fundamental to providing the underpinning of what makes accountancy a public interest profession,” said Choudhury. “That’s just as true in advanced economies of the world as the emerging economies in developing countries.”
Small and Midsize Practices
IFAC is also paying attention to the issues faced by small and midsize accounting practices and their clients in similar-size businesses.
“We have always had and continue to have a focus on the small and medium-size enterprise sector, which is 95 percent of all job creation and economic wealth,” said Choudhury. “We believe the profession has a tremendous role to play in support of small to medium-size practices as they navigate the path from small to medium to large, sustainable organizations, who are increasing the productive capacity of society. That’s where most of our practitioners are engaged.”
IFAC has been speaking out on the issue of financial fraud and corruption. “I think the data there is clear,” said Choudhury. “Transparency International estimates that over a trillion dollars a year is lost to fraud and corruption, and that global GDP would grow by several percentage points if that number could be significantly reduced. We believe the profession has a number of roles to play there. One is speaking out, as engaged society members. Also, lending our expertise at the level of forensics, which we very actively do, but also at the international level contributing to discussions on appropriate anti-fraud and regulation regimes, things like the Financial Action Task Force deliberations on banking regulations.”
IFAC also sees the increasing need for integrated reporting, uniting financial reporting with information on other aspects of how companies do business. Choudhury pointed to recent findings from the Edelman Trust Barometer.
“The public’s trust in institutions—public sector, private sector, media and non-governmental organizations—is really declining, and there’s a belief that these organizations are either ineffective or not acting in the broader public interest,” he said. “I think financial reporting comes into that discussion, because a lot of stakeholders have become far more concerned about what entities they invest in, or contribute taxation money to, how they are adding value. It’s not all about the bottom line. If that bottom line is earned at the cost of a lot of negative effects overall, is that a good thing or a bad thing? The notion of moving beyond financial reporting to integrated reporting and actually having a systematic discussion of how an entity creates value addition, how it creates wealth, we believe is a very important direction for the future, and we are wholly supportive of the International Integrated Reporting Council’s work. Those are some of the public interest discussion areas we have on our radar screen and agenda at the moment.”