ECSAFA 20^th ANNIVERSARY

IS THERE A SCOPE FOR A TRULY GLOBAL FINANCIAL REPORTING FRAMEWORK

CONTENT

         I     Background and key issues

II     Justification of the need for a truly global financial reporting framework

III   Modalities of conception elaboration of a truly global financial framework

 IV Tentative conclusion; the way forward

I.     BACKGROUND AND KEY ISSUES

When in 1972 in Sidney at the IFAC world congress of accountants WCOA, the late Sir Henry BENSON proposed to establish the IASC, International Accounting Standards Committee and when in 1973 the IASC began work with the aim “to formulate and publish in the public interest basic accounting standards to be observed in the presentation of financial statements and to promote their world-wide acceptance and observance”, very few people  would have thought the need for globalization in a matter embastilled by the limited and shortsighted common understanding that accounting has more to do with the necessity to comply with tax obligation than to report to all stakeholders and to serve public interest as represented by the financial market.

The goal was rather to harmonize the varied accounting practices than to build a unique globally accepted set of  accounting principles.

The world since Sidney 1972 WCOA has dramatically changed, no barriers can stop goods and services to reach the global markets, no country can live isolated of the rest of the world

The immediate consequence of this interconnection of all national markets is the rationale behind the need to operate with the same tools to harmonize the accountings standards, financial reporting   framework

As illustrated by recent events since Enron and the subprime crisis we all know today that it is imperative to concert and to convert the whole world market into an ethically irreproachable place, a leveled playing field so that the best and the most competitive products and services   become accessible to all the people of the world at an economically acceptable price.

It is nowadays a conventional wisdom to recognize that there is a linkage between clarity and growth between good governance and economic efficiency, between good accounting principles and investors decisions to invest, between environment protection awareness and companies appeal for investors appetite, between corporate social responsibility and companies attractiveness for John the plumbers decisions on  investment,  nowadays multiple channels economic information’s flow throughout the world in deliberate ignorance of States and governments desire to command their citizens hearts minds and pockets.

In view of this unparalleled globalization of the economy, the question of the existence of a case for a truly global financial report framework appears  prima facie as a tautology with a limited interest and without any possible dissenting opinion.

Today especially when Brazil India and China have decided to adopt the International Financial reporting standards as defined by IIASB.

This common understanding of the stringent needs to unify  the ways the same transactions are to be represented in a comparable true and fair view at the level of the whole planet does not preclude the right to question the way this titanic task is being accomplished and to ask ourselves if this done in a way to include all interested parties and to cater for every stakeholder s specific needs.

KEY ISSUES

Notwithstanding the general acceptance of the need for a global financial reporting standards and framework, some key contentious issues remain to be considered for the developed for the developing and the emerging countries alike and these issues, some of them candid, some other controversial but all pertinent to the topic if we mean clarity, relate to the following subjects :

1.    What is what should be the format, the source of inspiration and the perimeter of interest of a truly global financial reporting framework ?

2.       Should the investors' decision facilitation preempt all other considerations notably when instantaneous financial statements throws doubts and fragility on the financial statements.

3.       How can cultural differences and languages barriers be part of the solution and not a major obstacle to the recognition and consent on a global financial reporting framework ?

4.       Will this global framework be for each reporting entity or solely for public listed companies ?

5.    What place shall be given to Performance compared to Financial Position ie is the Income Statement a dead body to be uried when IASB/FASB is adopted in 2011 ?

6.       Will the global Financial Framework be rules  biased or principles based ?

7.       Will it dedicate itself to satisfying financial markets Wall Street or will it reach out to the needs of Main Street (Small and Medium Sized Entity) ?

8.       How to balance Universality /uniformity of the framework i.e. is it one size fits all or does it require/permit? Some sort of tailoring for geographic specifics

9.    What status in terms of legitimacy, acceptability in terms of specific needs of governments for taxation purposes, and for all other stakeholders particular needs will reclaim the Financial Framework .

10.  How will be resolved the dilemma of availability at efficient cost in an intelligible wording, equal accessibility on a timely basis and inclusiveness in the production of the standards setting, due process from draft proposals to final version?

11.     What is envisioned to favor  digestibility, in respect to the speedy  rhythm  of standards creation that impede the possibility to understand  participate to  due process interpret and disseminate new standards through academics books,  professionals  and institutes  ?

12.     Of what true usefulness are accounting standards and the related framework if  Financial statements continue to convey only figures of the past when the needs for forecasting and managing the future is   so poignant and if some newly revered concepts like the Performance Accounting, the perspective of value chain of the financial statements  including the role of the company’s  management in the production of financial information are not taken care of in the   process.

These above listed issues far from being exhaustive give an idea of the prerequisites if there has to be a truly global financial reporting framework.

Rather than questioning the need for global financial reporting framework they demonstrate the magnitude of the problem and illustrate the  urgent necessity to dwell on the subject notably on the justification of the globalization of the  Framework and the modus operandi in place to elaborate disseminate share and update the Framework .

II     JUSTIFICATION OF THE NEED FOR A TRULY GLOBAL FINANCIAL REPORTING FRAMEWORK

The markets is going global and investors are looking farther and farther for  golden  opportunities  where ever they are localized but in the same time investors are risk averse require predictability and clarity as precondition to putting their resources. Wherever they want the Financial Statements to be an instant business decision tool.

Mergers and acquisitions have never increased so rapidly both in number and in dollars terms involved, and before any such operation is conducted the issue of comparability of the financial reporting framework appears as an important topic  especially when it comes time to close the deal. But even as one of the major task as the due diligence phase.

Another difficulty comes out when multi-national companies want to get access to capital markets if the Financial statements are prepared according to diverse and sometimes conflicting accounting principles ; furthermore they have to face the costly need to convert their financial statements to the format of each market place listing accounting rules It is about the same when a Foreign Direct Investor wants t do business in a place demanding that issuers  establish  their Financial statements with local rules not in harmony with his home country set of accounting format; this implies that the FDI  pays costly fees for conversion  which is disincentive for the investments flows.

  As they want to cooperate in an efficient manner the  world Stock exchanges leaders  members of the   International Organization of Stock Exchange Commission -IOSCO- have concluded that all the membership will  use the International Financial Reporting Standards IFRS as defined by the International Accounting Standards IASB ; this historic decision derives straight from the awareness that global business means global accounting standards that allows room for comparability and agility in resources allocation. In the same line of positive direction towards a  global  lingua franca but that would not be an Esperanto for accountants, the agreement reached at the Norwalk meeting between  the US FASB and IASB which has set up a standing committee to assess the diverging points between the two sets of conceptual framework, and which has set up a 3 phases project in view of reaching an agreement on a unique Framework of concepts.

Does this trend constitutes the end of the story on financial information diversity/adversity?  Absolutely no because of the ways governments through out the planet pose their fiscal interests before world common interest the lack of clear cut borderline between responsibilities of each actor in the production of the financial information line the lack/excess of regulation/excess of self regulation and absence for years of two key elements in the financial information value chain, inclusiveness and supervision; it is in that regard notable that the Public Interest Oversight Board  PIOB at IFAC level  and the monitoring group and Advisory council for IASB  have only consultative roles.

There is a big gap between verbal commitment to adopt the same financial reporting framework   and actual and positive strategic action plan for implementation. 

At this stage the question is whether the modus operandum in place is able to face the challenges on the road to a truly global financial reporting framework.

            III.   MODALITIES FOR THE CONCEPTION   ELABORATION ADOPTION AND DISSEMINATION OF A TRULY GLOBAL FINANCIAL REPORTING FRAMEWORK

The current organization of the global profession has proved through the last 20 years its capacity to adapt to the fast evolving demand, both IFAC and IASB have been agile enough to respond to fast growing needs both of the markets and the other stakeholders.

The difficulty when it comes to ruling for different countries with different jurisdictions is to obtain legal status in each given country.

In order to be acceptable for the stakeholders they must have their saying in the due-process and have their concerns taken into consideration.

It appears at the test of experience that a global framework to be successful requires:

a)            In-depth analysis of all concerned parties needs in view of including taking care of these needs in the standards setting process;

b)           consultation at large scale with all stakeholders notwithstanding their size ;

c)                Inclusiveness in order to assemble all the parties that will use the framework as a tool a guidance for whatever Economic decision they want to take.

The large consultation described above means that it is at the level of their inception that standards are to be acceptable to stakeholders, this means also that all competent people are given the aqual opportunity to take part in the conception, elaboration, and discussion of the Financial Framework.

It is imperative that the most experienced and best competent experts from all squatters of the world be part of the process of standards elaboration, by so doing the profession organisation will be perceived as caring for all the constituency and not only for WALL STREET against Main Street.

There is a need for institution building and for a global vision which inplies opening the Door so that from Discussion paper to implementation there is no part of the World left aside ; strange enough that is exactly what IFAC is asking the G20 to do by demanding in the recommendation to the G60 countries next split dated July 31, 2009 that the governing bodies of IASC Foundation designs new structures and procedures in order to be independent and to be representative of the whole world.

One of the major difficulties relates to the knowledge gap between the Professionals of the different regions of the globe; this should be considered as challenge for capacity building for all actors so that they are capable to have an input in the standards elaboration process and not an excuse to exclude the developing nations professionals from the standards protection circles, this is the only way to be inclusive and as think global.

For a truly global financial framework to be, it is of the most importance that it caters not only for the big multinationals but also for the financial information the widow from CARPENTRAS might need to manage her patrimony.

Another condition of success is the need for stability, without, stability and a good planning of the Production of new standards there will be no possibility to absorb and digest all these newtie, in that regard IASB had promised one year ago to refrein from lauching any new standard for two years, without compremising the permanent duty of research and development inherent to the central role the professional plays in the rapidly moving world business.

The work would continue permanently but result could be retained and planed for publication on  an orderly way.     

IV.   CONCLUSIONS WHAT NEED TO BE DONE POLITICALLY INSTITUTIONALLY AND IN TERMS OF   COMMUNICATION

It then appears that most part of the problem lie on the inadequacy of the present institutional setting which for years looked rather like an old fashioned British private club than an open minded world institution that is diversity aware.

As we went on our analysis through the history of standards setting from the timid beginning to nowadays’daring plan to be the unique global lingua franca, we have observed that fundamentals are there, great ambition is visible  to conquer the financial world, become the universal language in business and a key decision tool; much has been done to meet the challenge of a fast changing world; we all know that more remains to do particularly in the planification of the life cycle of standards, and also  in terms of inclusiveness, legitimacy and digestibility and stability

Last but not least the question of the Financial statements for general purpose should be reexamined because if  most part of the users of financial statements satisfy their needs with the stand alone set of financial information ,the truth remains that room must be left for some sort of tailor making to really adapt to specific needs, of course we all know that the order of the day is to adopti not adapt and that the only alteration to the standards is addition not deduction.

Nice enough but what about Performance  reporting ?

Aziz DIEYE