The Revised SMOs: What You Need To Know
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Presentation given by Szymon Radziszewicz, IFAC Senior Technical Manager, during a seminar on the IFAC Statements of Membership Obligations (SMOs) at the Federation of Accounting Professions in Thailand.
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The Revised SMOs: What You Need To Know
- 1. The Revised SMOs: What You Need to Know Szymon Radziszewicz Senior Technical Manager IFAC IFAC SMO Workshop for AFA April 7, 2013 Bangkok, Thailand Page 1 | Confidential and Proprietary Information
- 2. Revised SMOs Let’s Put the Pieces Together • What are SMOs • Why Revise • Key Concepts • Structure • Key Revisions • What PAOs Need To Do Page 2 | Confidential and Proprietary Information
- 3. Revised SMOs What are the SMOs • In accordance with IFAC Constitution, IFAC members and associates are required to comply with the SMOs • Member and associates have to identify and take actions to fulfill the requirements set out in the SMOs Page 3 | Confidential and Proprietary Information
- 4. What are SMOs Power to Grow • Clear benchmarks for PAOs • Enable high quality performance by professional accountants • Encourage continuous improvement • Drive sustainable development of the accountancy profession Page 4 | Confidential and Proprietary Information
- 5. What are SMOs Building Blocks SMO 4: Ethics SMO 7: SMO 3: SMO 5: IFRS ISA IPSAS SMO 2: Education Page 5 | Confidential and Proprietary Information
- 6. Revised SMOs Why Revise? • Serve the public interest • Drive adoption and implementation of international standards • Clarify • Reflect international good practice • Increase effectiveness of IFAC Compliance Program Page 6 | Confidential and Proprietary Information
- 7. Revised SMOs Key Concepts • Shall = requirement • Applicability Framework • Comply or explain • Best endeavors • Compliance Program Page 7 | Confidential and Proprietary Information
- 8. Key Concepts Understanding Diversity Different Regulatory Sectors of degree of frameworks profession responsibility Page 8 | Confidential and Proprietary Information
- 9. Applicability Framework Degree of responsibility for an SMO area No Direct Shared Responsibility For the elements for Use best endeavors to: Implement all the which Member Body requirements of the has direct a. Encourage those SMO responsibility follow responsible for the the approach for requirements to follow In exceptional situations "Direct" this SMO in departures are possible implementing them; if can be justified from AND the public interest AND perspective and need to For the elements for be documented which Member Body has no direct b. Assist in the responsibility follow implementation where the approach for appropriate "No Responsibility " Page 9 | Confidential and Proprietary Information
- 10. Revised SMOs Structure of the SMOs Obligation Scope Applicability Framework Requirements and Application Guidance IFAC Compliance Assessment Page 10 | Confidential and Proprietary Information
- 11. Revised SMOs Key Revisions • SMOs 2, 3, 4, 5, 7 • SMO 1 • SMO 6 Page 11 | Confidential and Proprietary Information
- 12. SMOs 2, 3, 4, 5, 7 Adoption Decision Action to make the decision effective Page 12 | Confidential and Proprietary Information
- 13. SMOs 2, 3, 4, 5, 7 Different Approaches – One Goal Adoption Transposition Page 13 | Confidential and Proprietary Information
- 14. SMOs 2, 3, 4, 5, 7 Implementation Dissemination Implementation of standards guidance Education and Raising training awareness Page 14 | Confidential and Proprietary Information
- 15. SMOs 2, 3, 4, 5, 7 Translation • Assess priorities and challenges • Is there a need of translation to ensure proper adoption and implementation • Process for timely, accurate and complete translation Page 15 | Confidential and Proprietary Information
- 16. SMO 1 Quality Assurance Consider QA performed by another authority to avoid overlap Extension of the scope to ALL audits of financial statements (priority for PIE audits) Ensure sufficient resources Refer to I&D if no corrective action Consideration of Public Oversight Review of implementation and effectiveness Page 16 | Confidential and Proprietary Information
- 17. SMO 6 Investigation & Discipline Improved logic flow Initiation of proceedings – both complaints and information based Improved linkage between SMO 1 and SMO 6 Proportionality of sanctions Public interest considerations Liaison with outside bodies Review of implementation and effectiveness Page 17 | Confidential and Proprietary Information
- 18. Revised SMOs What PAOs Need To Do • Review and understand revisions • Consider actions necessary to address revisions • Plan and execute actions • Cooperate within RO/AG • Reflect actions in the next update of the SMO Action Plan Page 18 | Confidential and Proprietary Information
- 19. It All Fits Together Strong Global Accountancy Profession Page 19 | Confidential and Proprietary Information
- 20. Compliance Program Progress File Notes Page 20 | Confidential and Proprietary Information
- 21. Breakout Session • Group 1: Focusing on Adoption & Implementation – Countries: Singapore, Myanmar – Facilitator: Sylvia – With input from: James & Phoebe • Group 2: Focusing on Investigation & Discipline – Countries: Brunei, Cambodia, Malaysia – Facilitator: Marta – With input from: Lucia & Andrew • Group 3: Focusing on Quality Assurance – Countries: Indonesia, Philippines, Thailand – Facilitator: Szymon – With input from: Jonathan & Reza Page 21 | Confidential and Proprietary Information
Hinweis der Redaktion
- Intro remarks – Thank AFA for organizing the event and their generous support I making the workshop happen.
- Revised SMOs can appear to be quite a puzzle. In this presentation we will look at all the puzzle pieces together to explore the revisions.
- Let’s start by looking at what are the SMOs. They are embedded in the IFAC Constitution and in the first instance apply to all IFAC members and associates. In a sense they are international “soft law” but for IFAC members and associates SMOs
- But more broadly, the SMOs are globally recognized as a clear benchmark for strong accountancy profession.
- The 7 Statements of Membership Obligations (SMOs) serve as the basis for the IFAC Member Body Compliance Program and provide clear Framework for strong and high quality Professional Accountancy Organizations (PAOs). The SMOs are also globally recognized as the benchmark for PAOs as they work, in the public interest, to develop, continuously improve and monitor high quality professional accountants. Of course for the PAOs to be strong they need sound governance framework. While there is no SMO on Governance IFAC has some guidance and soon we will issue a refreshed version on it.As you see,we can think about the SMOs in terms of building blocks for constructing strong PAOs. First, solid PAO needs a good base of education; then come technical standards, IFRSs, ISAs, public sector accounting standards, but the whole house is kept together by a cornerstone of Ethics. All of us are simply human and, therefore, require guidance on what is right or wrong. But also because we are human, we need solid systems of external quality assurance and if wrongdoing is reported or suspected – an unbiased investigation and disciplinary system.
- So, why did IFAC decide to revise the SMOs in 2012? Under the oversight of the Compliance Advisory Panel and PIOB.Serve the public interest: to reflect the context of developments in international standards and today’s regulatory environment, to also reflect the expectation of the accountancy profession held by the public and key stakeholders.Clarify the SMOs: to ensure that the SMOs continue to be an effective framework for credible and high quality PAOs.To further drive adoption and implementation as clearly mandated in the IFAC strategy Changes were made to the structure of the SMOs to (A) ease the understanding of the SMOs, and (B) to add new requirements to reflect current international best practice.Presentation will cover a description of both elements of the revised SMOs.
- Let’s look at the next piece of the puzzle and consider what are the key concepts of the SMOs.Use of “shall” to identify requirementsUnderstanding diversity – Applicability FrameworkComply or explain - when PAO has responsibilityBest endeavors – when PAO has no responsibilityIFAC Member Body Compliance Program
- Probably one of the most important concepts underlying the SMOs is appreciation and understanding that PAOs are all very different.
- What you see on this slide is the clarified applicability framework. It is included at the very beginning of each SMO to guide PAOs what actions they have to take to satisfy SMO requirements depending on how much responsibility they have for each of the seven SMO areas.For example, if you have direct responsibility for setting auditing standards, then to comply with the SMO 3, you have to adopt and implement the ISAs and if something prevents you from doing it, you have to provide satisfactory explanation.On the other hand, if you have no responsibility for setting accounting standards for the public sector, then to comply with SMO 5, you should use your best endeavors to promote the IPSASs to the government and offer your assistance for example to organize training for government accountants.Now on to the main requirements.
- To further help PAOs in understanding the SMOs, we have improved and streamlined the structure of the SMOs.Each SMOs starts with clear reference to the obligations enshrined in the IFAC Constitution.It then identifies the scope of the SMOAnd proceeds to set out the applicability framework that we have just discussedAfter setting the scene, each SMO sets out relevant requirements and application guidanceFinally, each SMO concludes by indicating how IFAC approaches the assessment of each member and associate compliance with the SMO
- Let’s now look at the key revisions to the SMOs.We will first cover revisions to SMOs 2, 3, 4, 5, and 7 – or the so called “standard-setting SMOs”Then we will look at just the key revisions in SMO 1 and 6
- Adoption consists of two key steps: (i) the decision that the international standard is appropriate for the jurisdiction, and (ii) the actions necessary to make that decision effective.
- Depending on legal and regulatory framework and other jurisdiction-specific factors, adoption can take many different forms, including: requiring use of the international standards, as set by law or regulation; incorporating or transposing international standards into existing national requirements;establishing a convergence process, bringing together national and international standards to minimize and/or eliminate differences; oreliminating major departures from international standards through harmonization of national requirements with international standards.
- Implementation includes a range of activities that ultimately raise awareness of the standards and build understanding regarding their use in practice by individual practitioners. In addition to promoting and disseminating the standards, actions supporting implementation include design and delivery of related education, training, and practical guidance materials.
- Translation can also be a core element of effective implementation. In jurisdictions where English is not the official language, the responsible entity should consider their priorities and determine the impact of translation on proper adoption and implementation. Where it is deemed relevant, a process for timely, accurate, and complete translation should be established.
- To assist you in understanding the revisions and your considerations on what changes need to be addressed, we have prepared a range of tools that will be made available on the IFAC website after the Council ratifies the SMOs. The main tool is the Revised SMO Comparison Guide that includes: a) Summaries of major revisions to each SMO as compared to the previous SMOs issued in 2004,b) Full text of the revised SMOs with: - Paragraph references mapping it to the previous version of the SMOs Notes indicating the nature and the objective of the changes, if any, made to the paragraph.In addition, to the comparison guide, and if you will want to know more detailed information, we have also prepared and will make available:A document summarizing significant issues raised in the exposure process and conclusions reached by the CAPDetailed mark-up document from original to revised SMOs.And, of course, as always you can reach out to the IFAC staff in case you will have any further questions or required some additional clarifications.We also think about organizing learning workshops alongside events organized in the regions. We want to make use of webinar technology to organize virtual learning opportunities. And last, but not least, we want to leverage our relationships at global, regional and national level to progress our vision of global adoption and implementation of international standards.
- Before we will start the more exciting part of this afternoon and have more hands-on discussion about what the SMOs mean for each of you, I would like to finish my remarks by emphasizing that the Vision of the Compliance Program is one of encouragement and improvement. The Program strive to influence agendas and actions towards global adoption and implementation of the international standards, but we can only do that by partnering with you as IFAC members and associates. Since 2004, when the program was established, you – IFAC Member Bodies – have taken the lead and continue to demonstrate the commitment to building strong and high quality professionals. We are confident, that with your ongoing commitment and the support of our partners, we will continue on the road to building strong and high quality PAOs around the world for the benefit of public interest and sound and sustainable economies.
- Through the Compliance Program, IFAC gathers and publishes a great deal of information relating to the work of its member bodies around the world and the developments within national professions. This information can be leveraged by donors, regional bodies, regulators and mentors interested in development of the profession.This year, we have started summarizing the information in internal Progress File Notes.They use Dashboards with Traffic Lights indicators to provide high level information on:What is the degree of responsibility of the PAO for each of the SMO areasWhat is the status of adoption AT A COUTRY LEVEL – for each SMOWhat is the status of SMO Action Plan – in other words – is the PAO doing all it reasonably can to support each of the SMO areas.These dashboards are internal for now, but we have started socializing them with members and plan to utilize this type of presentation style in more public reports.