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Thursday, 22 May 2014 01:36 - - {{hitsCtrl.values.hits}}
The East Asian financial crisis preceded even Enron and Worldcom and should have been an alarm bell ringing in the ears of standard setters who often meet in exotic locations to deliberate on the many types of standards known today by many acronyms.
Among them are IFRS and now, enter FRED. One wonders whether all this is after the horse has bolted as it were and the launch of FRED – Financial Reporting for Economic Development – just recently, yet another initiative with the attendant hype and hoopla, prompts one to ask the questions: ‘Are corporates and economies ready for the next collapse? Is FRED good enough?’
Against the backdrop of three events this week, the Confederation of Asian & Pacific Accountants (CAPA)-initiated sessions on ‘Financial Reporting for Economic Development’ held this week at Jetwing Blue Negombo, the SEC/CASL Corporate Directors Program launched at the Hilton on Tuesday and intended to improve board room governance, as well as the CAPA Board Meeting tomorrow, the Daily FT looked at the many ways in which we have over the decade and more partnered the accounting profession in awareness building and compliance with standards and came across this message to the then 700,000 strong membership from our very own homegrown first Sri Lankan Past President of CAPA Ranel Wijesinha, as far back as 2002. We believe it is worthy of reflecting upon, especially the following words:
“The collapse of the economies of nations such as what happened four years ago in East and South East Asia, or the collapse of corporates such as what happened in none other than North America, a few months ago, can be disruptive. It can devastate what otherwise could have been only a continuation of a simple and less than extravagant life style for many who are less privileged than those at the higher levels of governance who are typically better cushioned to absorb the shock and disruptions these events bring. It is this segment of society that I particularly wish to identify and empathise with, since it is only through them that we realise the gravity of the implications of subpar professionalism or poor governance.”
The full text of the message is reproduced below:
The demise of Enron will call for changes in legislation and regulation, not only in the United States but also on a global and regional scale. These changes will require to be designed and implemented with the utmost urgency. More importantly, the changes will need to be practical and effective, if we are to regain the confidence of investors and employees.
The adequacy of skill and experience of boards of directors, effectiveness of governance structures and systems, which include audit committees, will increasingly be questioned. accounting and auditing firms, will be challenged, to objectively review and strengthen their quality control procedures, to match professional knowledge and skill with complexities of assignments and to demonstrate that they work with the highest levels of independence, objectivity and integrity.
The chief financial officers, corporate secretaries, corporate legal officers and outside legal counsel will require to perform their roles with far greater professionalism and vigilance. But let me also add, that those who monitor corporates from the outside, such as financial analysts, stock brokers and credit rating agencies, will require to strengthen their independence, deploy appropriate skills, and enhance the depth and breadth of their analysis, if they are to be respected by those who depend upon them.
In the aftermath of the East Asian financial crisis, Western nations in particular and corporate leaders, regulators, scholars and authors of the West, were critical of the East and South East Asian nations, their statutory and regulatory systems, the auditing profession in these countries, accounting and auditing standards and compliance therewith. Their criticism was liberal and in many respects justified. But what is more important I think is whether regulators, professions and corporate Boards of even the developed nations in the West, are yet as vigilant as the global society inherently expects them to be.
One might argue however and quite correctly, that systems and procedures, legislation and regulation, alone, will not always be potent enough to prevent a major corporate collapse. A necessary ingredient then is ethics and discipline. Personal values and corporate values of the highest acceptable level must converge and become the driving philosophy by which we live and work. In essence there has to be a restoration of values. I believe that it is possible to realise a vision of a far more respected environment of corporate values, professional values and personal values. We would be naïve of course, if we expect changes overnight, but I submit that we would be irresponsible, if each one of us institutionally and individually does not incrementally and progressively work towards that desirable new frontier of superior business performance driven by good governance, simultaneously with a robust and respected profession driven by ethics and discipline.
Over time, the collective endeavours of business and the profession will contribute towards sustainability of business, respectability of our profession and stability of families and homes. The collapse of the economies of nations such as what happened four years ago in East and South East Asia, or the collapse of corporates such as what happened in none other than North America, a few months ago, can be disruptive. It can devastate what otherwise could have been only a continuation of a simple and less than extravagant life style for many who are less privileged than those at the higher levels of governance who are typically better cushioned to absorb the shock and disruptions these events bring. It is this segment of society that I particularly wish to identify and empathise with, since it is only through them that we realise the gravity of the implications of subpar professionalism or poor governance.
As a regional organisation, we must, together with our member bodies and on behalf of our 700,000 plus membership, work together with the other regional organisations in the Americas, Europe and Africa, as well as with IFAC, the IASB, IFAD and the multilateral funding agencies and regional development banks, the UN and related bodies who are already working with IFAD, in order to collectively build a robust and sustainable future for business and the profession. Let us all place this on the top of our agenda for the future.”
