Number 1 in numbers

2011-06-02T11:50:00.005+10:00

As of 2 July 2011 all my new blogs will be posted in the Institute’s new myCommunity section.

To follow my blog at its new location, I invite you to login to this exciting new online resource for Institute members and finance professionals.

I look forward to hearing your views on future blog posts in myCommunity.

Regards,
Lee White

Improving regulation of the insolvency profession

2011-05-16T08:25:00.001+10:00

The Senate Economics Reference Committee has made recommendations to government on the regulation of insolvency practitioners in Australia, with the aim of giving corporate insolvency greater priority and prominence in the regulatory framework.

The Institute was closely involved in the Senate Committee consultation process through a detailed submission and an invitation to provide evidence.

We support the push for greater prominence of the insolvency profession but not just with the regulatory structures. A better understanding of insolvency activities and challenges will greatly assist quality outcomes.

The Committee's work was triggered by concerns over the conduct of some insolvency practitioners and claims there had been a lack of action by the regulator, Australian Securities and Investment Commission (ASIC).

The most controversial recommendation was to remove the task of regulating corporate insolvency from ASIC and pass the job onto the Insolvency and Trustee Services Australia (ITSA) agency. This seems like an unlikely outcome, given the transfer of key functions by government to ASIC, such as market supervision from the Australian Securities Exchange.

ASIC has acknowledged the need to lift its game in the insolvency space – it’s allocated more resources to the division. Despite the increase in its regulatory activities over practitioners, this response has drawn yet more criticism - increased activity without improved quality. We don't share these criticisms but we believe it is important to get the right balance in approach to driving improved quality of services, particularly in the co-regulatory environment.

The current laws and regulatory framework can be improved and the insolvency profession, like all professions, should be subject to continual review, be clearly accountable and respond to the changing conditions in the business environment.

What are your thoughts on the regulation of insolvency practitioners?

Early warning systems – can more be done to avert economic and financial crisis?

2011-03-29T15:47:00.011+11:00

Australia can be pleased with the performance of the economy and financial system during the GFC. Certainly compared to the turmoil in the northern hemisphere, we weathered the storm relatively unscathed. And to be frank there was probably equal weight of good management as well as good luck that helped Australia through.

Nevertheless, I believe it’s important we continue to improve the systems that keep Australia strong. We need to think and explore further improvements to our policy settings, regulatory structures and overall corporate governance to ensure we stay ahead of the game.

At the Institute, our mandate is to serve the public interest - influencing public policy, contributing to and affecting the changes emanating from Canberra, the legislation that will ultimately impact you – the taxpayer.

In keeping with our mandate, the Institute recently released a thought leadership paper entitled Early warning systems – can more be done to avert economic and financial crisis? In collaboration with Access Economics, the paper aims to stimulate thinking and discussions to identify improvements in our macro- and micro economies.

I am very pleased with how this paper has been received since it was released. It appears to have ‘hit the mark’ with our members, regulators and policy makers, both locally and internationally.

Please find some time to consider the paper and let me know whether you think it is tackling the right issues. Also I would really welcome your thoughts and comments about other topics that we should be pursuing with our broader business, economic focus.

A wrap-up of the EC conference

2011-02-22T13:44:00.003+11:00

It’s been a week since returning to Australia, and I’ve had time to consider further and reflect on the discussions I’d been a part of in Brussels. Here are my brief wrap-up thoughts:

Clearly, there will be change occurring with the policy settings concerning external audit in Europe – Commissioner Barnier made that clear – but what is unknown will be the extent of these changes. For each topic discussed in Brussels there were strong arguments both for and against.

The timing of these changes was set at ‘the end of the European summer’ or no later than the end of October 2011 for a proposed directive.

It seems fairly clear to me that all European countries will be heading to using and following the International Auditing Standards – a sensible outcome.

My sense on auditor independence is that there will certainly be some tightening of limitations on the type of non-audit services that auditors can provide to their clients. I don’t believe that Europe will head for a total ban on all non-audit services – but it was certainly discussed and did have some supporters.

To stimulate the audit concentration focus, suggestions on mandatory rotation of audit firms and joint audits were discussed in great detail. If these were seen to be a ‘bit heavy handed’ then regular competitive tendering may be seen as a suitable option.

The absence of an appropriate legal liability regime (liability capping) in Europe was highlighted as currently being a significant limitation in Europe.

There was much focus and discussion on the evolving role of the audit committee and recognition that it is such a critical component of corporate governance.

My suggestion to assist with appraising all of these current options is to continue to focus on the question – does this proposed change lead to an improvement in audit quality?
At the end of the day, no-one would dispute that we all are committed to the goal of improved audit quality.

Finally in Australia, we should not simply assume that changes in Europe will automatically flow to Australia – we need to consider our individual jurisdiction policy settings and regulatory framework and reach the right judgements about any proposed changes – change simply for the sake of change is not good enough.

EC conference on Financial Reporting and Auditing – Day 2: Audit

2011-02-11T10:52:00.004+11:00

Day 2 of the European Commission roundtable in Brussels commenced with a keynote presentation from Michel Barnier (Commissioner for Internal Market and Services).

His opening remarks sent a clear and strong message. He reiterated a view that the 'status quo regarding auditing was not an option'. The EC received 700 responses totalling 10,000 pages and he was currently 'seriously thinking' about the proposed changes. The changes were to support his goal of having a strong single market for Europe.

Commissioner Barnier outlined 5 areas of proposed changes:

1. Clarifying the role of audit – the relationship of audit should not just be with the audited company but with a much broader group, particularly the investors. A view on the state of the health of a company - not just the numbers - is needed.

2. Independence of the Profession – trust of the auditors needs to be re-established. He is looking at the options of mandatory periodic tendering, rotation of audit firms and regulatory approval of auditors for systemic risk companies.

3. Structure of the audit market – the focus on audit share by any firm should have a ceiling and support the French model of joint audits.

4. SME and SMPs – the 'lung for Europe's economy'. He wishes to encourage growth and will consider different levels of requirements for different companies and auditors.

5. Better international co-operation – regulators need to work better together. He commented that Europe's patience was running out with the US desire to converge their accounting standards.

Importantly, the majority of the areas the Commissioner focused on were related to changing and improving the role of the Audit Committee. This is an area highlighted in the Institute’s submissions to EC and the UK House of Lords!

Stay tuned, still more to come!

EC conference on Financial Reporting and Auditing – Day 1: Financial Reporting

2011-02-10T16:06:00.007+11:00

Day 1 of the European Commission roundtable in Brussels started - with a bang - with the opening address from Jonathan Faull - Director General for Internal Market and Services, European Commission.

Speaking to a packed room of nearly 450 international delegates, Mr Faull sent a clear and strong message that the financial crisis and economic downturn in Europe and other countries is 'still on' and, therefore, the discussions of the next couple of days would be focused on solutions.

Mr Faull’s keynote address 'A Time for Change' highlighted two areas of financial reporting, these being financial accounting standards convergence and governance around the IASB.

He stated that the EC decision to adopt IFRS in 2005 for their capital markets was 'the right one' and he recognised that 2011 should be an important year for convergence. He referred to the obvious example of the United States but talked about other countries as well. A salient point here was that whilst convergence was important it should not compromise the quality of accounting standards.

Secondly the issue of governance around the IASB was highlighted for change. It was clear the governance arrangements needed to improve and this will occur through the consultation of a paper issued by the Monitoring Board.

The widely anticipated roundtable event should provide some interesting insights into the EC's audit reform agenda, as well as IFRS, with some high profile speakers including the incoming IASB chair Hans Hoogervorst and EC Internal Markets boss Michel Barnier.

Tomorrow will cover EC audit reform and we expect strong opinions being voiced, starting with Michel Barnier (Commissioner for Internal Market and Services) at 9.45am Brussels time.

Stay tuned - much more to come.

Academia and the profession working together!

2011-01-27T08:56:00.006+11:00

There’s a paradigm shift about to emerge: a forum in Adelaide next week will bring together accounting practitioners with leaders in accounting academia. The aim is to investigate the contemporary challenges around accounting education, academe and the accounting profession in Australia.

What makes this event particularly interesting is that academics and practitioners will participate on the panels of discussion at the same time. Our profession has not seen this approach often and I am optimistic that it will lead to some frank and open conversations. It makes good sense to have these two groups together and engaged on the right issues.

From a practitioner’s perspective, over many years I have always felt torn with academic research. I have seen considerable research that is quite innovative and challenging and leaves me curious for more, while also spurring me to apply these findings to my own work environment. In short, the research is achieving its goals - engaging and driving practitioners to solutions.

But I have also seen research that leaves me underwhelmed – being left with questions like: why has this research been done, what is it trying to achieve, or in particular, I think this research is very helpful but it has been published long after, making the research practically obsolete! This last point – for me – is a particular challenge.

Practitioners see business conditions move significantly – we have all seen this with the GFC in recent times. Because they are working within these dynamic conditions – their expectations for academic research is equally time-sensitive. Some may suggest that this is not reasonable – research needs sufficient time to draw the facts together, undertake the analysis and formulate views and recommendations – and I can accept that too. But where is the optimum positioning with these two views?

The forum in Adelaide could be a potential start to a new working partnership between academia and the profession.

Total performance in the spotlight

2011-01-12T11:09:00.002+11:00

The Prince’s Accounting for Sustainability Forum held in London just before Christmas drew over 200 business, community, investor and professional accounting leaders from around the globe. I represented the Institute at this event, along with our technical expert, Geraldine Magarey, Manager Sustainability and Regional Australia.

Held at St James’s Palace State Apartments, HRH the Prince of Wales and the UK Chancellor of the Exchequer, George Osborne MP, spoke passionately about how the global economy needs to evolve to meet the challenges of the sustainability revolution. The future is uncertain and people are judged, remunerated and recognised largely by what they achieve today rather than tomorrow.

How we plan and provide for the future will determine our ultimate success and, indeed, survival.

One thing is clear – there is still an urgent need for businesses to put a value on and better account for the social and environmental impacts of their operations.

Now some of you may say this appears to be a re-run of the ‘Triple Bottom Line’ reporting which has been around for some years, but this is not the case. The focus of the forum was to highlight the emergence of ‘Integrated Reporting’ – an enhanced reporting mechanism increasingly used by businesses to better meet the information needs of stakeholders.

Smart businesses are already well ahead of their competitors with integrated reporting – this is not only for the future, but for now!

I’ve expanded further on the topic of Integrated Reporting in my regular Dealbook column on AFR.com.

Responding the European Commission review on the role of audit

2010-12-14T08:59:00.002+11:00

The aftermath of the global financial crisis (GFC) has given rise to a flurry of activity among regulators, governments and policy makers around the world.

In Europe, the audit profession, in particular, is under heightened scrutiny. There is an unprecedented wave of consultations and calls for submissions from government officials and regulators.

In November this year, both Andrew Stringer (Head of Audit) and I were invited to give evidence to a select committee of the UK House of Lords on the topic of audit. As the only non-UK body, we presented the Australian perspective of what might have gone wrong in the banking crisis that hit the UK.

More recently, the European Commission came out with a Green Paper Audit Policy: Lessons from the Crisis on 13 October 2010.

This paper questions the role of audit and how audit function might be enhanced to contribute to financial stability. This week, the Institute responded to the Green Paper, supporting policy changes that clearly lead to improvements of overall audit quality.

In the submission, we acknowledge that it is likely that the European audit profession will see future enhancements in policies in light of the banking crisis that plagued Europe. Our encouragement to European authorities is to use our analyses and experience to influence the development of well considered and innovative improvements before launching into substantial and broad legislation.

Fortunately for us, Australia was at the periphery of the banking crisis and the impact was limited to disruptions to the global funding markets. Given the global nature of the audit profession, it is timely and important to present the Australian perspective of having the robust systems in place that brought us through successfully. Audit should have a key role in ensuring the proper financial governance and strength of companies. This, in turn, improves general market sentiment and overall investor confidence.

If there is to be international regulatory reform, it is important that a comprehensive debate is had, that the focus is on improving the quality and value of audits to meet the demands that have arisen following the financial crisis.

Any reform to audit policy should not be driven by the fear that still reverberates around the global financial crisis, or even worse, merely for the sake of change.

The Framework for managing audit quality sustainability

2010-11-30T11:11:00.002+11:00

At the Institute we recognise that for audit practitioners in 2010 there are considerable challenges to ensure audit quality is not only maintained, but also improved. We are committed to helping our members to meet these challenges through continued education and training and sharing of peer experiences. All of this helps to contribute to continued high audit standards.

We recognise that it is essential that Australia maintains a healthy and focused audit community.

As part of our commitment to members, I am pleased to present to you a practical working tool for members practicing audit entitled Framework for managing audit quality sustainability.

The framework is a follow-up to our 2009 publication entitled Guide to audit quality – benefit of audit and defines the key components needed to manage a sustainable audit process.

The framework is a first as it is designed to be used by practitioners in large or small practices and publicly defines the components needed to manage a sustainable audit process in a ‘clear, precise and consistent manner.’

I trust that you will find the Framework for managing audit quality sustainability useful in your next audit and look forward to receiving your feedback.

If you have any questions or feedback regarding the framework, please contact me on 02 9290 5598 or alternatively at lee.white@charteredaccountants.com.au.

The changing role of the CFO

2010-11-05T16:35:00.004+11:00

It seems to me that our profession continues to evolve at a fairly rapid rate.

One role that’s changed dramatically over the years is that of the CFO. Once, the CFO was someone who primarily focused on the financial position of an organisation.

Today’s CFO, I’m delighted to say, is a dynamic member of the management team. Part visionary, part strategist. And only part accountant, in a conventional sense.

There’s no doubt the broader role a good CFO does play in today’s organisations. As money and financial instruments become more and more complex, effecting the wellbeing of the business, so too has an understanding of the numbers. It’s not surprising that the accounting professional is being invited to share their leadership, vision, and general management skills.

Of course, with increased responsibility comes increased risk. While the average CFO salary is 30-60% higher than controller salaries, according to Robert Hall International, their longevity in the role can be short-lived. According to a report in Fortune Magazine in 2009, almost 25% of CFO positions in the Fortune 1000 changed over in one 12 month period. For small businesses, the position turns over every 2-3 years.

So, today’s CFOs must be well prepared. There’s no time to settle in or learn on the job - they really do have to hit the ground running.

As well as a solid understanding of the accounting principles, strong technical and operational skills, a CFO must demonstrate leadership skills and a passion for the business. In fact, what makes a really good CFO may not even be in the job description.

It really is fascinating to see how the role has developed over the years. I must say, I’m looking forward to chairing a lunch in a few weeks time, where several CFOs will be asked to share their success stories. What were their journeys to the top? What challenges face them today? Where else do they think the role of a CFO will go in the future?

I’d be interested to hear from other CFOs, or budding CFOs, on the challenges facing them. Is the broader role and recognition worth it for the likelihood of a short stay at the top? Add your comments, and let me know.

I’ve no doubt that the role of the CFO will continue to change. As they say, ‘watch this space’!

Real time assurance for today's economy

2010-08-16T11:10:00.003+10:00

Recently, the Institute has worked with leading academics on a thought leadership paper which aims to raise the profile of an emerging form of assurance practice - called 'Continuous assurance'.

The paper entitled, Continuous Assurance for the Now Economy is intended to stimulate thinking about the issues that need to be addressed in a world where Continuous assurance has become, or aims to become, the standard for both internal and external auditing. The paper examines how the profession must respond so that the vision on IT-enabled real-time auditing is to become a reality.

Continuous assurance - what is it?
Continuous assurance is a concept developed as a result of the 'now economy' which is characterised by 24/7/365 globalised operations, customer interaction and management decision making. Continuous assurance will form an intrinsic component of the now economy by providing key stakeholders with timely and more relevant access to business data, which has a level of assurance placed on it.

Why is it important?
The International standard setter, the International Auditing and Assurance Standards Board (IAASB) has recognised continuous assurance as an emerging methodology which needs to be explored.

Likewise the Institute presented the paper to the Australian Auditing and Assurance Standards Board (AUASB) who recognise the important impact that continuous assurance could potentially have on the profession as a whole, particularly around accounting education, technology, business reporting and the existing skill-set of professional auditors.

What does the paper say?
The paper recommends six practical steps that go some way to delivering the practical application of continuous assurance, including:

Establish priority areas
Identify monitoring and continuous audit rules
Determine the process' frequency
Configure continuous audit parameters
Follow up
Communicate results

I believe that traditional auditing will give way to more progressive and close to the event assurance. It is because of this that we have kick started the continuous assurance debate to create and open up dialogue with key stakeholders.

I would be interested in your thoughts?

Essential guidance for 2010 financial year end

2010-06-28T15:32:00.007+10:00

As part of the Institute's ongoing analysis of themes impacting preparers, auditors and audit committee's as they perform their financial year end roles and professional responsibilities, we have uncovered three new issues as well as confirmed the continued presence of three existing themes in our latest Essential guidance for the 2009-10 financial year end

Despite improvement in Australia's business conditions, and the country avoiding Europe's sovereign debt risks, the challenges for the June 2010 financial year end reporting period continue to be - determining fair value, impairment of assets and going concern.

Looking forward the Institute anticipates increased fair value movement in financial instruments to continue as well as some reversals of impairments from prior years. An increase in the cost of capital, exchange rate fluctuations and more mergers and acquisitions are expected throughout the rest of 2010.

The continued volatility of the Australian dollar and some commodities place great pressure on corporate risk management and hedging strategies. Liquidity remains tight for businesses, therefore, careful forecasting of short to medium term finance needs is critical, as is clearly understanding the terms and conditions with bankers and financers.

It will be extremely interesting to witness how the Australian economy continues its path out of the global economic downturn and whether it can capitalise on its unique position.

International financial regulation – changes are afoot

2010-05-25T08:36:00.005+10:00

The global economic downturn clearly showed that macroeconomic policy and prudential supervision were not sufficient to ward off systemic crisis in the international financial system. So the momentum of change has begun – but the $64,000 question remains – What does this mean for Australia, especially when it moved through the economic downturn with greater success than most Westernised countries? Indeed Australia has been praised for its resilience, so what’s next?

Recently, Professor Ian Harper from Access Economics remarked that Australia was at risk of unnecessary change since it appears that the ‘whole class was being punished because two students were caught smoking’! It is with this thought that the Institute engaged with Prof Harper and Access Economics to identify the main global reforms under consideration and how Australian authorities should respond.

The analysis, entitled Reforming international financial regulation identifies three broad responses which Australia could make to the international reform agenda. These range from fully signing up to the reforms, through redefining Australia’s regulatory responsibilities to better reflect global developments, to explicitly repudiating some of the more interventionist proposals.

I am interested to find out about your opinion and whether you agree. For mine I believe we have an opportunity to re-think Australia’s regulatory framework following the findings of the Wallis Committee in 1996-97. New rules may require a new assignment of functions among Australia’s financial regulators. Through this process we must not lose sight of the overall goal which is to keep the financial system more stable and less prone to crisis.

Fit for the future: Challenges for the next generation of Australians

2010-04-29T11:37:00.010+10:00

To date the Institute’s thought leadership papers have rightly focussed on forward looking, thought provoking topics that are traditional to the accounting profession (for example, audit, reporting and taxation).

In 2009, the Board of the Institute of Chartered Accountants identified the need to become a greater initiator and contributor into public policy debate on broad business and economic issues which have implications integral to the future success of Australia.

In this regard the Institute sought the expertise of Saul Eslake, one of Australia's leading economists. Saul facilitated a workshop involving the Institute's Leadership and Quality team who were asked to develop six issues believed to represent the key challenges and issues impacting the youth and future generation of leaders in Australia.

The topics were restricted to those collectively agreed to have the most amount of impact on the future financial and global success of Australia and especially relevant to young accountants.

The six issues identified at the workshop included:

The ongoing resources boom
An appropriate level of debt
Home ownership and affordability
Australia’s infrastructure requirements
Making the most of Australia’s human resources
Australia’s role in international governance structures.

These six issues have been presented in a thought leadership paper just released entitled, Fit for the future: Challenges for the next generation of Australians

The paper is designed to start a conversation with today’s and tomorrow’s leaders to work through these issues. I welcome debate on this forum on all or any of the issues presented in the paper.

Audit quality - what is the current status?

2010-03-09T14:58:00.003+11:00

On 5 March 2010, the Chairman of the Financial Reporting Council, Mr Jeffrey Lucy AM, released a Treasury consultation paper Audit Quality in Australia: A Strategic Review.

The Treasury paper identifies the key drivers of audit quality in Australia and assesses whether any measures should be taken to address any real or perceived threats to these drivers of audit quality. The paper itself is an extensive piece of work (26 findings in total) and is drawn from a range of sources, in particular the UK Financial Reporting Council's paper on Promoting Audit Quality.

The key findings of the Treasury paper include

Australia's audit regulation is robust and in line with international best practice
Australia's audit regulation framework appears to be functioning effectively during the current economic conditions
ASIC's investigations into recent corporate failures may highlight areas where audits can be generally improved.

These findings align with the views and public messages the Institute has expressed regarding the auditing profession, in particular they mirror those expressed in our thought leadership paper, The benefit of audit - A guide to audit quality.

I'm interested to hear what you think of Treasury's paper and the 26 findings. You can contact us at techsubmissions@charteredaccountants.com.au

When is the ‘early part of the year’?

2010-02-22T17:27:00.001+11:00

Reading a recent transcript of a Senate Estimates hearing involving various Government and Coalition Senators as well as Officials from the Department of Treasury makes for quite important, and often outrageously funny, reading. A rather lengthy debate took place about precisely when the ‘early part of the year’ turns into the ‘middle of the year’.

The semantics of the phrases are important because both the Treasurer and Assistant Treasurer have repeatedly said over the last few months that they will release the Henry Tax Review, along with the Government’s initial response to it, in the ‘early part of 2010’.

Senator Barnaby Joyce took charge of this particular point of discussion in the estimate hearing, initiating a rather comical interchange with Assistant Treasurer Senator Nick Sherry about precisely when the public can expect to see the content of the much-anticipated Henry Tax Review.

I encourage you to read the transcript here

What we can conclude from this, other than it would have been difficult to be in the room watching this without breaking out in fits of laughter, is it looks like the Government will release the Henry Tax Review sometime before June 2010.

And how do we know that?

Well, thanks to Senator Joyce’s interrogation, we now know that if the Government releases the Henry Tax Review in June it would be the ‘middle’ of the year and not the ‘early’ part of the year. And of course the Government wouldn’t want to be seen to be contradicting what the Treasurer and Assistant Treasurer have been saying...

We wait with baited breath!

The time is right

2010-01-29T10:36:00.003+11:00

The economic outlook for 2010 looks and feels stronger for the first time in the last two years.

But we can see challenges for Australian businesses particularly with the lag effect of the downturn and the increase in interest rates.

These challenges come in all shapes and sizes. Insolvent trading for Directors is one.

Recently ASIC produced a draft guide to highlight to Directors (particularly the SME community) their responsibilities relating to insolvent trading. While the aim of the guide is commendable there are improvements that need to be made. Most importantly ASIC needs to explain its communication strategy on this issue as a guide alone will have minimal benefit.

Of greater impact is a discussion paper released by Minister the Hon Chris Bowen on changes to the current insolvency laws. Oddly this paper seems to suggest that ASIC's guide will have a very short shelf-life.

We applaud the Minister for releasing the paper and wishing to engage in this debate. Some options in the paper relate to a more informal approach to business rescue plans, including greater flexibility to directors liabilities.

Laws on insolvency are finely balanced. Adjusting those laws requires a steady hand - but the goal is worth it! Inevitably attention in this debate will come to those individuals who abuse the laws, such as those involved with phoenix activities.

Dishonest behaviour should not prevent law change, particularly if substantial benefit can be gained.

Let's use this paper on insolvency laws to have a healthy debate on one of Australia's most important regulatory settings.

Sustainable reporting

2010-01-08T14:19:00.003+11:00

Happy New Year!

Just before Christmas, I attended the Accounting for Sustainability Forum in London, UK. The forum was attended by representatives from global businesses, audit firms and professional bodies, among others. The forum had considerable alignment with the climate change discussions occurring simultaneously among world leaders in Copenhagen.

It was agreed that we would form a committee that would oversee development of a global ‘integrated reporting’ model. The model would connect the reporting of an organisation’s strategy, risk and financial and sustainability performance.

I found the forum to be an extremely valuable experience, particularly given the Institute’s work on Broad Based Business reporting which not only fits with the breadth of thinking that has been happening with the concept of integrated reporting around the world, but has been at the forefront in terms of thinking and content. Overall there was strong conviction by all at the forum that accountants and the profession need to play a leadership role when it comes to global sustainability challenges.

I also left the forum with some trepidation. One of the biggest challenges to the success of integrated reporting is the current level of global dissatisfaction with financial statements – that is, the issues about the size of statements, complexity, too much detail, etc. I was left thinking: if we add to financial statement reporting with broader integrated focus, will all of this useful and relevant information be left by the wayside because of the current concerns with financial statements?

Where do you see the future of reporting heading?

CFOs as leaders

2009-12-01T10:17:00.003+11:00

Recently, I hosted a panel discussion in Melbourne with three prominent CFOs in the Australian business community, I was joined by Matt Bekier (Tabcorp), Tony Connon (Australia Unity Limited) and Peter Meehan (Australia Post). The session was extremely well received with over 260 in attendance.

The aim of the panel discussion was to examine how CFOs dealt with the issues of the global economic downturn along with the lessons learnt and the processes which need to be put into place in order for their company to be well positioned for the upturn.

The panellists were also asked about the one piece of advice they had for CFO's of the future with the most notable observation being, 'I wouldn’t worry too much about accounting standards...the priority for CFOs is that they need to know their business inside-out.' While this observation is strong it gives some sense into the important role CFOs play to the overall success and operation of the business - it is no longer adequate to just oversee the financial viability of an organisation. CFOs of the future need to know all there is to know about their company in order for them to provide strategic, financial and non-financial guidance.

The Institute is dedicated to providing further resources and guidance in the future to the CFO audience. The guidance will form part of a '20 issue series' that the Institute will be launching next year. Stay tuned!

I am interested to hear what other people think about the skill set required of CFOs now and for the future. Your thoughts?

The role of the audit committee

2009-11-12T14:30:00.003+11:00

Amid recent media coverage and an ongoing productivity commission we are all acutely aware of the roles and responsibilities of the remuneration committee of a publicly listed company. However, another important board committee largely misunderstood is the audit committee.

The audit committee, or risk and audit committee in some organisations, is mostly made up of non-executive board members. The audit committee is charged with the appointment, engagements, management and measurement of the annual external audit and subsequent recommendation to the board regarding the sign-off of the financial report.

The evolution of the audit
In the past audit committees may have only met once of twice a year, however now it is common for audit committees to sit four to five times a year. Governance has also played a role in the evolution with more boards recognising that the responsibility for a company's financial reporting rests with them, hence the role of the audit committee has changed and essentially provides an effective mechanism for focusing on issues relevant to such reporting.

AFR roundtable
The evolution of the audit committee was one of the main themes to come out of anAustralian Financial Review (AFR) roundtable discussion which the Institute hosted at our offices today. Participants at the roundtable included chairs of audit committees, an auditor from the Big 4 and myself. The purpose in hosting the roundtable was to clear some of the confusion about the role, drivers and benefit of the external audit which currently exists within the business and investor communities.

The key themes of today's discussion included:
- Evolution of the audit committee
- Role and responsibilities of the audit committee
- The relationship and functionality of external auditors and the audit committee
- The risks for the industry and what the future holds.

The roundtable experience was beneficial as I was able to learn from the participant the key issues, and future challenges that the audit committee will face along the road to continued evolution.

After the roundtable tt was pleasing to come to the conclusion that Australia's auditing profession, along with the current framework of auditing standards, is among the world's best. However, looking towards the future we should be continually challenging ourselves to identify and develop actions that aim to improve auditing practices and outcomes.

A guide to audit quality
To date there has been very little guidance, to which I am aware of, to help businesses understand the quality of the audit service being provided to them. In this regard, the Institute has produced a guidance document aimed at educating the marketplace on the specific drivers of audit quality. We have recently witnessed that the role of audit can be understated and undervalued. This guide will help ensure Australia remains focused on the benefit of audit. The guide will be available free of charge from the Institute of Chartered Accountants website (www.charteredaccountants.com.au) in the coming weeks so stay tuned.

The future for rating agencies

2009-10-21T16:23:00.000+11:00

Since the start of the global economic downturn considerable emphasis has been placed on the roles and responsibilities of various stakeholders. One group in particular that has had its share of the spotlight is credit rating agencies (CRAs).

There has been a significant amount of discussion in the media around the role of CRAs. The value of credit ratings has been widely questioned as have the perceived weaknesses in their processes (including not downgrading companies promptly enough) and the potential for regulatory reform. It is this last point which is particularly interesting.

There is no doubt that CRAs fulfil an essential role in the global capital markets. The ongoing role of CRAs is to instil confidence and integrity to our capital markets, the current challenge facing the industry is to restore the confidence, value and role of all participants in the marketplace.

There is a hurdle though, relating to conflicts of interest – real and perceived – which significantly diminish the value of their work. Ratings were perceived, at times, to contain bias (poorer quality) because of the financial incentives and future revenue rewards. Yet how do we respond globally to those perceptions?

We have seen the International Organisation of Securities Commissions (IOSCO) announce that it would update the Code of Conduct (and that has now been done) to provide more detail on minimum standards for regulating the activity of CRAs. And in Australia, CRAs will be required to hold an AFS licence and full details of this regime will emerge soon. But will this be enough?

It is interesting to compare this approach with what occurred with the global audit profession in the last couple of years.

After the collapses of Enron, Worldcom and HIH Insurance there was a global push to change the perceptions around the independence of auditors. Auditors were seen to be ‘too close’ to their clients at the potential detriment of users of their audit reports. In the United States we saw SOX reform and in Australia CLERP9 as two types of responses. We also witnessed the change in ethical standards and the increase in the requirements for auditors to fulfil, and the introduction of auditor oversight regimes (PCAOB in the US and ASIC in Australia) which independently examined the policies and practices of auditors regarding independence and quality. These were fundamental changes for auditors.

Perhaps most importantly of all, we observed that auditors recognised that they had to change perceptions. They could see they had to respond. They invested heavily in additional resources and systems to deal with new requirements, and as a result much has changed.

So when I compare what has happened with auditors, I can only sense that there will be much more to come with the CRAs. It is important there is balance in regulatory responses and public policy settings. It is also very important that the CRAs recognise the challenge of changing perceptions. There are some interesting times ahead.