By James Kelly
Fayez Choudhury, CEO of the International Federation of Accountants, explains to James Kelly the critical role good regulation plays in maintaining a sustainable global profession and how the role of accountants is being challenged by rapid technological change.
In 2008, the global financial crisis demonstrated that the then-existing financial regulatory system was in need of desperate mending. Fast forward eight years, it seems the repair work is still far from over.
Serious questions are being raised over the real impact of the large amount of regulations introduced since the crisis, and their mounting side effects. Leading the charge is Fayez Choudhury, the International Federation of Accountants’ Chief Executive Officer. The organization has become the profession’s advocate against excessive red tape and its champion for globally proportionate and transparent regulations, which do not smother innovation or exacerbate costs.
As part of this, Choudhury, a fellow of the Institute of Chartered Accountants in England and Wales, launched a series of roundtable sessions in December covering themes addressed in an IFAC discussion paper, From Crisis to Confidence: The role of good regulation. The issues and questions raised in the paper are based on surveys and feedback from hundreds of members
of the profession worldwide. The roundtables seek to bring together regulators, business and securities people, and academics to generate a dialogue on the state of play of regulatory responses to financial crises, what is and isn’t working, and what are some of the lessons that might be learned.
Choudhury, who enters his fourth year as the IFAC CEO this year, says Hong Kong was chosen as the launch pad for the series given its importance as a commercial, industrial, financial, and trade centre. “If there seems to be an appetite and interest in this discussion in Hong Kong then it’s probably a good signal that it’s a discussion we should generate elsewhere,” he tells A Plus.
“I think everyone accepts that there needs to be regulation but then you need to be very clear on what the objectives and process for the development of the regulation are. The regulators’ views should be informed in a collaborative process by not just those that will be regulated but also those that feel the consequences under the regulation.”
The discussion paper and recent surveys highlight grave concerns in the profession towards the trend regulators are taking, and the burden compliance is placing on business.
“What you see from that survey is that the results are not all that promising,” says Choudhury. “There is a view that the regulation hasn’t been proportionate, that perhaps the objectives haven’t been clear because there are impacts on risk taking, innovation and growth. It is burdensome in terms of not just cost but in terms of the time required to ensure compliance. Therefore, is it fit for purpose?”
Another recurring theme is the growing challenge of global regulatory fragmentation. “It’s one thing to deal with a problem in a national context, but when that problem also exists across borders and when a lot of business today is global, the reconciliation of global regulations with national regulations can create problems in and of itself,” he says.
IFAC works closely with its regional and national member organizations – including the Hong Kong Institute of CPAs – to encourage them to actively participate in providing inputs to the regulatory development process so far as it affects the profession.
“We really view it as participating in the process of public consultation, which is a very important component of the development of regulation,” Choudhury says. “I don’t think we view it as seeking to lobby or influence. We believe the development of good regulation should be in the public interest, that the views of all members of the public need to be sought and analysed and responded to.”
He cites the collaborative approach taken with the Institute in response to the Hong Kong Financial Services and the Treasury Bureau’s consultation paper Proposals to Improve the Regulatory Regime for Listed Entity Auditors in 2014 as an example. “We certainly liked the process. Hong Kong as an international centre has to be aligned with evolving global regulations,” he says.
While good global regulation is required for sustainable investment and trade, evidence in world gross domestic product growth suggests that the post-financial crisis recovery is lagging far behind the recoveries following the crises in 2000, the 1980s and even going back to the 1930s.
“When something bad happens the natural reaction is let’s make sure this never happens again, build the firewalls and, let’s just be safe, build another one,” Choudhury says. “There is a huge cost of developing the regulation and then you get huge costs of complying with the regulation and I’m not sure if anyone has thought about the backend, how good is the monitoring and evaluation and impact of the regulation, has it actually achieved what you are seeking it to do?”
This is of particular concern to one of IFAC’s key constituencies, the small- and medium-sized practices. Choudhury warns against a one-size-fits-all approach to regulation to allow for that sector to be nurtured and grow.
The growing burden of regulation may also be deterring young talent from becoming accountants. Choudhury says attracting new entrants to the profession at a time when there is huge competition for talent is one of the major challenges facing the profession. Young professionals are no longer lured by the prestige of a company or the prospects it offers, but increasingly they are motivated by doing something that has a social purpose. “So, if you are going to compete for the best talent how do you present what your profession has to offer?”
Global opportunities are a key advantage, according to Choudhury. “One of the strong points of the profession and one of the strong points of IFAC is that we are truly trying to create a global profession through this idea of global standards. In a global business world and in a global interconnected economy I think global professions will become very valued and very essential, and I think the accountancy profession has probably got the best framework to be able to do that.”
There will be special considerations though. “If you look at the difference in sophistication and the stage of development of accounting bodies around the world, there is clearly some way to go before we can claim to be applying the same standards in Zimbabwe that we are in New York or Hong Kong. So I think that is also a challenge making those accounting bodies in less developed parts of the world grow at a faster rate than their economies because that will be a big attraction for business. Accountants can really help stimulate economies by having a strong accounting profession.”
He identifies China as a case in point. “One of the things they should be applauded for is that the (Chinese) government realized that a strong accountancy profession was essential to developing private sector investment,” Choudhury says. “They are very plugged in to what is happening on the international stage and look at it very carefully and respond in their context.”
IFAC has recognized the efforts made by China, with the full backing and advice of the Institute, in strengthening the Chinese profession through its convergence with international standards. It has developed close links with the Institute and the Chinese Institute of Certified Public Accountants, both of which have strong representation on the IFAC board, and its various panels and committees.
“China has grown from zero in the mid 90s with a US$27 million loan from the World Bank; they actually built a profession in 18 years that has taken other countries a century to build. They have proceeded at a very impressive pace and with full regard to the importance of quality,” says Choudhury, who was previously with the World Bank where his last two assignments were as vice president of corporate finance and risk management, and controller and vice president of strategic planning and resource management. In the latter role, he was the group’s spokesperson on global accounting and auditing issues.
The IFAC CEO says the profession is now at a critical point. The role of the accountant is being challenged by a rapidly changing world, new technologies and the traditional province of accountants being encroached by other professions. “In the good old days the accountant was the accountant, the lawyer was the lawyer, the engineer was the engineer, now you have business qualifications, you have commerce qualifications which have an element of accounting,” he says. Technology too is not only changing the way accountants work, but also what they do.
“Where will that process take us in terms of what the residual role of the accountant is?” To Choudhury, this is another pressing question the profession should look into.
This article was originally published in the February 2016 edition of A Plus. You can read the digital version here.