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.
Tuesday, March 29, 2011
Tuesday, February 22, 2011
A wrap-up of the EC conference
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.
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.
Friday, February 11, 2011
EC conference on Financial Reporting and Auditing – Day 2: Audit
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!
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!
Thursday, February 10, 2011
EC conference on Financial Reporting and Auditing – Day 1: Financial Reporting
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.
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.
Thursday, January 27, 2011
Academia and the profession working together!
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.
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.
Wednesday, January 12, 2011
Total performance in the spotlight
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.
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.
Tuesday, December 14, 2010
Responding the European Commission review on the role of audit
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.
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.
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