Challenges Faced by the Accounting Profession in Developing Nations

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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
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The World Bank GroupWorking for a world free of
poverty
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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 worlds poor are in Middle Income
  Countries

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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.

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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.
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Gleneagles Summit, Scotland July 2005
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Governance, Poverty Reduction, Financial
Management
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GAC Consultations (Nov. 2006 Jan. 2007)
Europe Brussels, the Hague, London, Madrid, OECD,
Paris, Rome, Stockholm
MNA Egypt, Morocco, Yemen
ECA Albania, Bulgaria, Georgia, Moldova, Russia
North America Ottawa, Washington DC (IMF, MDBs,
US Government, CSOs, private sector, unions)
EAP Australia, Cambodia, China, Japan, Indonesia,
Lao PDR, Mongolia, New Zealand, Philippines,
Vietnam, Thailand
LAC Argentina, Bolivia, Dominican Republic,
El Salvador, Guatemala, Mexico, IACC
SAR Bangladesh, India, Nepal
AFR Burkina Faso, Botswana, Cameroon, Kenya,
Mauritania, Mozambique, Rwanda, Senegal,
Tanzania, Uganda. Planned Congo-Brazzaville

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

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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.

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Diagnosis of Country PFM Systems?

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

diagnostic tool
fiduciary responsibilities
development objectives
Action Plan
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PFM Diagnostics Completed over 100
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PFM Diagnostics Emerging Cross-cutting Issues

• Incomplete Budget Information
• Inadequate Accounting Systems
• Obsolete Legal Framework
• Ineffective Internal and External Audit
• Poor dissemination of PFM information
• Shortage of qualified PFM Professionals
• Barriers to IFMIS

Mostly due to weak capacity
Mostly due to weak capacity
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International Financial Crises
Weak Financial Systems
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International Response Standards Codes

• Policy Transparency
• Data Transparency
• Fiscal Transparency
• Monetary and Financial Policy Transparency

• Financial Sector Regulation Supervision
• Banking Supervision
• Securities Regulation
• Insurance Supervision
• Payments Systems
• Anti-money laundering

The World Bank

• Market Integrity
• Corporate Governance
• Insolvency and Creditor Rights
• Accounting
• Auditing

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What is an Accounting and Auditing ROSC?

• Evaluates strengths/weaknesses of institutional
  frameworks
• Assesses comparability of national with IFRS/IAS
  and ISA
• Examines compliance with standards in practice
• Supports the preparation of development action
  plan for enhancing accounting and auditing
  standards and practices

strengths/weaknesses
comparability
compliance
development action plan
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ROSC AA Reviews Completed 62
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ROSC AA Reviews in Latin America Caribbean 10
4 being finalized
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ROSC AA Emerging Cross-cutting Issues

• Outdated legal frameworks
• Weak accountancy professions
• Widespread non-compliance with standards
• Weak monitoring/enforcement mechanisms
• Lack of access to international standards
• Inadequate training and curricula
• Non-availability of implementation guidance and
  practice manuals

Mostly due to weak capacity
Mostly due to weak capacity
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How do we get there?
From Diagnostics to Implementation
Fromdiagnostics to
capacity development
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Capacity Development Follow-up
Involves Collaboration/Partnership

• Government
• Country Stakeholders
• Donors
• World Bank

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

• Country leadership and ownership
• Tailor-made capacity development design
• Comprehensive programme design and implementation
• Coherent and coordinated donor support

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Building FM Capacity Harmonization and Global
Partnerships

• Donors are harmonizing fiduciary requirements and
  are aligning those with strengthened country PFM
  systems
• MDB
• OECD-DAC JV-PFM
• Donors are supporting FM capacity building
  initiatives in various countries
• Donors are supporting international FM
  organizations
• IFAC
• INTOSAI
• IASB
• IFAC Developing Nations Committee

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Building FM Capacity How Can the Accountancy
Profession Contribute?

• Complying with IFAC membership obligations (SMOs)
• Supporting IFACs 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

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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