IFAC’s globalization attempts in LDCs: a success story?

In 2006, the International Federation of Accountants (IFAC) issued seven statements of membership obligations (SMOs) to assist ‘high quality performance by professional accountants’. The member bodies of IFAC, which includes national accountancy bodies from most of the countries in the world, were required to give their best efforts to abide by the SMOs, and failure to do such without satisfactory explanations would result in suspension or removal of membership. The seven SMOs issued by the IFAC covered areas such as audit quality, audit education, code of ethics for professional auditors, disciplinary procedures to be adopted by national auditing bodies, adoption of International Standards on Auditing (ISAs) and International Financial Reporting Standards (IFRS), and accountability and auditing in the public sector.

Like many other researchers and academicians in this area, I was also initially sceptical of the applicability of these SMOs in a less developed country (LDC) such as Bangladesh, given that these mechanisms, developed in the context of developed economies, would only work under assumptions of an efficient capital market, higher investor sophistication, and presence of effective second order institutions (such as efficient regulators, judiciary, et al) that would complement such governance schemes. However, a few years down the line, it appears that some of these globalisation attempts are actually producing results that might change the image of the accountancy profession in this impoverished yet economically promising nation.

As part of Institute of Chartered Accountants of Bangladesh’s (ICAB) attempts to comply with the IFAC quality control requirements, a quality assurance department has been established. Regular visits are now being made by the ICAB’s quality assurance team to different audit firms across the country to ensure that their audits are of the standards set by the IFAC. The visits include comprehensive scrutiny of some sample audit working papers. This is important in the context of Bangladesh, as the poor quality of audit work performed especially by small audit firms has been a concern. Also, an audit manual has been produced and regular workshops are being arranged by the ICAB to create awareness regarding audit quality in Bangladesh. The ICAB members involved with the quality assurance programme appeared enthusiastic regarding the level of cooperation received from the audit firms.

Another significant development towards compliance with the IFAC standards has been the area of audit education and training. In 2008, a World Bank funded project helped the ICAB to enter into a twinning programme contract with the Institute of Chartered Accountants of England and Wales (ICAEW). The ICAEW worked closely with the ICAB between 2008 and 2009 to improve the curriculum, overseeing and monitoring reform in the education and training system. Once the project is completed, members of the ICAB will have the opportunity to secure memberships of the ICAEW subject to certain conditions. This global recognition has, perhaps, given the auditing profession in Bangladesh the greatest opportunity to present itself to the world as skilled, competent and ethical professionals who are capable of working in the largest audit firms and corporations in the world. This is probably the reasons why the ICAB seems to have taken this project with utmost seriousness, and decided, despite its limited resources, to continue funding the twinning arrangement with the ICAEW even after the World Bank funding stops.

Other significant developments for the profession include the adoption of the IFAC code of professional ethics, and the adoption of the IFRS. Bangladesh has been one of the very few countries in the world to have adopted the IFRS for the small and medium enterprises. This is significant for a country where the corporate sector is characterised by the presence of large number of SMEs, and will help ensure accountability in this sector.

As part of the compliance programme, every member body of the IFAC is required to submit progress report through a questionnaire response. The ICAB’s sincere effort in Bangladesh implies that Bangladesh is likely to tick most of the right boxes. However, there are still a number of significant risks and challenges for implementing the IFAC SMOs. Despite the good intentions and efforts of the ICAB, the accountancy profession still has to operate within the socio-political environment in Bangladesh. This means that efforts to self-regulate the profession are still likely to be affected by the painstakingly time consuming judicial process, which would make any disciplinary actions initiated by the ICAB largely inactive.