Jelil Bouraoui presentation to the Institute of Chartered Accountants - PDF document

Jelil Bouraoui presentation to the Institute of Chartered Accountants of India January 8, 2012 Dear friends, President, Vice President, and members of the Indian Institute, distinguished delegates, ladies and gentlemen, Good Morning. I am pleased and honored to be here in Chennai to attend your Prestigious International Conference on a subject dear to my heart ACCOUNTANCY PROFESSION: LEVERAGING EMERGING CHALLENGES FOR INCLUSIVE GROWTH. I like the challenges and inclusive terms, that ’s what our world needs most today. First of all I must present the apologies of our IFAC President Goran Tidstrom for not being able to attend; he must have very serious agenda conflict. I also would like to convey to you all the friendship of the Tunisian chartered accountants institutes council members and the Tunisian people who are now busy to learn about the Democracy. What I want to do this morning, because of the time constrain, and also because the Governance topic is well covered through other sessions, is to go over what IFAC has done on the subject and post my complete presentation on ICAI and IFAC web sites. Prior to the financial and economic crisis, IFAC commissioned a global survey of 341 investors, preparers, company management and directors, auditors, standard setters and regulators to determine the extent to which governance had improved and where there was a need for further improvement. The survey observed progress in the area of governance, compared to the time of the Enron crisis and other corporate financial reporting failures around the world (2001-2004). Interestingly, however, well before the current financial and economic crisis, from 2008 onward until now, developed, a number of persistent governance issues are now widely seen as among the factors that contributed to the crisis: Adoption of governance in name but not in spirit, providing a false sense of security. Many governance changes had been made “in letter, but not in spirit.” They shared the view that some organizations are pushed to improve their governance more by the regulatory bodies than by an inner drive “to do the right thing.” “Numerous organizations and boards of directors consider governance as yet another certification, and still think that forming committees and hiring consultants to write polices solves the problem.” Regulatory overload ( especially for SMEs ), Leading to legalistic compliance (“checklist mentality ”) rather than a principles -oriented practice approach. As a result, compliance activities would take too much time and attention and real risk areas and opportunities would be overlooked.

Behavioral and cultural aspects of governance “The ethical dimension – social, cultural and personal behavior – is fundamentally important throughout the whole governance process.” It is good to improve accounting and auditing, but banks, financial advisers and analysts, credit raters and lawyers should also adhere to a code of ethics. Remuneration structures with little relation to long-term sustainable performance. There are difficulties in relating remuneration to long-term performance and difficulties in discouraging short-term opportunism and rewarding failure. Remuneration structures should seek better alignment with longer term sustainable performance and be more transparency in executive compensation. Expand view from compliance governance to business governance There is too much compliance governance instead of business governance – not only to satisfy regulators, but also because many institutional investors put too much emphasis on compliance with governance rules We think that the overemphasis on internal control over financial reporting should be reconsidered. After the survey, IFAC conducted interviews with key leaders from around the globe to capture the governance recommendations from prominent preparers, directors, auditors, standard setters, regulators and investors. In these interviews the participants explore potential solutions for the major governance issues that emerged from the global financial and economic crisis, as well as for those issues that are now appearing in the horizon. Expand from shareholder perspective to stakeholder perspective Both public and private sector organizations have an ever-growing impact on social and economic life and are of increasing significance, not only for their owners and other investors, but also for their clients, employees, suppliers, neighbors, governments, regulators, financial markets, and for societies as a whole. Moreover, individual persons now fill numerous stakeholder roles at the same time: the same person can be a client, an employee, a neighbor of, and an investor (via his or her pension fund for example) in a specific company. To accommodate these different and, at times, conflicting perspectives, organizations should adopt a wider stakeholder view. Governance and sustainability should be better integrated in the strategy, operations, and communications of an organization Governance and sustainability are key elements in achieving long term social, environmental and economic performance, as well as in enhancing investor and stakeholder confidence. Put differently, the long term survival of organizations is no longer affected only by economic factors, but also by social and environmental ones. Therefore, these aspects should be better integrated in the strategy, operations, and stakeholder communications of an organization. Organizations should not produce first and think about

the social and environmental consequences only as an afterthought. Sustainable organizations tackle these issues upfront instead of finding solutions after the event. With respect to business reporting, organizations mostly produce social and environmental reports completely separate from their financial report, if they report at all on those aspects. This produces at best a fragmented view of the performance of the organization. When social, environmental and economic results of an organization are in one integrated report, taking into account the various interdependencies, we believe it is then possible to see the true performance of the organization Develop and implement codes of conduct to create a value-based culture We recommend formulating the values to which an organization will adhere in a code of conduct, and integrating them in the operations of the organization. In addition, investor codes of conduct are considered to be a route to much-improved monitoring of governance as shareholders have not been very pro-active in their role as owners and should actually start to take more action in this space. All these recommendations are easier said than done! The main question, therefore, is how to best enable organizations to make the transition to this next level of governance. At IFAC we believe that the Professional Accountant is in the heart of the Governance system and as a matter of fact we just added in our Mission to value the role, as a leader, of the Professional Accountant globally and we also geared the DNC to the PAODC, stressing the role and the importance of the PA. Professional accountants, delivering professional services to organizations, support effective governance and social, environmental and economic performance in various roles, which may be classified into creators, enablers , preservers, reporters , and (external) auditors for organizations. • Professional accountants as creators of value . In this role professional accountants are involved in leadership roles in governance, strategy and performance management and in overseeing the allocation of resources to ensure long-term sustainable value creation. Examples of specific roles include executive director, chief financial officer, financial director and treasury manager. As part of the organization’s management, professional accountants should ensure a strong link between business strategy, governance and sustainability so that boards and managers consider these areas in an integrated rather than isolated way. • Professional accountants as enablers of value. In roles such as business unit controller, business-, financial- and/or performance analyst, management or cost accountant, professional accountants influence and support those who make decisions. By providing relevant insight and analysis, and by challenging assumptions and conventional thinking, professional accountants as enablers of value will typically guide and assist sustainable strategic and operational decision making and implementation, and evaluate its ongoing relevance and success. Professional accountants should enable governance, risk management and control as a strategic activity and an integral part o f an organization’s management system.