THEME: VALUE CREATION BY

PROFESSIONAL ACCOUNTANTS
SUB
THEME:

GLOBAL INTEGRATION FROM THE

REGIONAL PERSPECTIVE

ACCOUNTING PROFESSION
AND PRACTICES
SAFA Conference 2008, Lahore
Syed Masoud Ali Naqvi
Senior Partner
KPMG Taseer Hadi & Co.
Karachi
4-5 April 2008

ACCOUNTING PROFESSION AND

PRACTICES
Introduction
Development of Accounting Profession
Globalization of Economy and its impact on the
Accounting Profession
Current state of Accounting Profession
Challenges
IFAC Global Survey
Changing role
Enhancing skills
Value creation
Conclusions

ACCOUNTING PROFESSION AND

PRACTICES

INTRODUCTION

ACCOUNTING PROFESSION AND

PRACTICES

DEVELOPMENT OF
ACCOUNTING PROFESSION

DEVELOPMENT OF
ACCOUNTING PROFESSION
Oldest surviving Accounting record dates from 1130
to 1830 AD - Great roll of Exchequers
Profession started in the fourteenth century
Double entry bookkeeping developed in fourteenth
century in Italy
Picolli system of Accounting in 1494
In 1856 Institute of Chartered Accountants of
Scotland was founded
5

DEVELOPMENT OF
ACCOUNTING PROFESSION
In 1880 the Institute of Chartered Accountants of
England & Wales was founded
First National Accounting Society in U.S. was found in
1887 which was a predecessor to the AICPA

Number of companies and cross border

investments increased in 1900s and the Audit
function was born
Until 1980s the core business of Professional
Accountants was Auditing
6

DEVELOPMENT OF
ACCOUNTING PROFESSION
Around 1980s with the advent of global economy
the demand for new services started increasing
The pressure to provide non-audit services with
relatively higher margins changed the value of
Professionalism based on ambition and commercial
considerations
The new approach started impairing the basic
attitude of independence and integrity
7

ACCOUNTING PROFESSION AND

PRACTICES

GLOBALIZATION OF ECONOMY
AND ITS IMPACT ON THE
ACCOUNTING PROFESSION

GLOBALIZATION OF ECONOMY AND ITS

IMPACT ON THE ACCOUNTING
PROFESSION
Investment is virtually becoming global with no
concept of National or Regional boundaries
Accounts are to be prepared in compliance with
standards and regulations of different countries
Convergence of Accounting and Auditing Standards
to ensure global common language
Global Profession

Global Standards
Global Regulations
Global alignment with business
9

GLOBALIZATION OF ECONOMY AND ITS

IMPACT ON THE ACCOUNTING
PROFESSION
Development of Capital market
Demand for new services
Commercialism created tension with professionalism
Audit as a commodity
Financial information and the system of corporate
governance designed to protect investors was
manipulated for private gains
Liquidity and integrity of capital market rests on
Trust and confidence

10

GLOBALIZATION OF ECONOMY AND ITS

IMPACT ON THE ACCOUNTING
PROFESSION
Globalization focus on enhancing standard of
Ethics
Quality of Education and training
Professional competency and continuous Professional
Development
Audit functions role in detection for financial frauds
and anti-money laundering

Global collaboration among Regulators

Global effort of collaboration amongst the
Professional bodies around the world
11

ACCOUNTING PROFESSION AND

PRACTICES

CURRENT STATE OF
ACCOUNTING PROFESSION

12

CURRENT STATE OF
ACCOUNTING PROFESSION SAFA
REGION
Profile of Accounting Profession in the Region
Practicin
Accountin

Total

Practici

Sole

0-2

3-5

5 - 10

10 or

Member

Member

ng

Propriet

Partne

Partne

Partne

More

Body

Firms

or

rs

rs

rs

Partners

14409
ICAI

69004

45952

32574

7784

4529

921

144

ICAP

4333

642

415

293

75

30

12

ICASL

3312

512

ICAB
ICAN

868

289

172

99

7859

4559

15260
TOTAL:

70447

46539

32966

933

149
13

CURRENT STATE OF
ACCOUNTING PROFESSION
Current Role of an Accountant
Accountants should be:
Knowledgeable about

A good communicator

accounting matters

A capable negotiator

An entrepreneur

A public relations

A financial analyst

specialist

A global competitor

A general manager

A skilled salesperson

A strategist

A good communicator

A team leader
14

CURRENT STATE OF
ACCOUNTING PROFESSION
Renewed emphasis on:
Accountability
Corporate governance
Role of Audit Committees and independent nonexecutive directors
Sound internal financial control and transparency in
financial reporting

15

CURRENT STATE OF
ACCOUNTING PROFESSION
Renewed emphasis on:
Standard of Ethics
Education and training
Life long professional competency
Audit and Assurance
Detection for financial fraud and money laundering

16

ACCOUNTING PROFESSION AND

PRACTICES

CHALLENGES

17

CHALLENGES
Business vs Profession Financial scandals
Arthur Levitts in his 1998 speech, warned the
Financial community:
To stop managing the figures and earning estimates
- wishful thinking
Common sense business practices and faithful
representation
Published accounts would no longer be trusted
unless meaningful disclosure is provided to investors
Trust that is the bedrock of capital markets would be
severely tested
18

CHALLENGES
Business vs Profession Financial scandals
Public faith in the integrity of Audit profession
was becoming increasingly tarnished
Integrity of information must take priority over
a desire for cost efficiencies or competitive
advantage in the audit process

19

CHALLENGES
Major Scandals:
Enron, Worldcom in US
Ahold and Parmalet in Europe
HIR Insurance in Australia
Trust and confidence was undermined on which the
liquidity and integrity of the capital markets is based
Investors faith in integrity of the participants was
badly shattered
20

CHALLENGES
Regulatory environment and oversight
Regulators overreaction or Knee Jerk actions
Sarbenes Oxley Act
Review of Regulatory oversight by Regulators in Europe
and other jurisdictions
Greater collaboration amongst the Regulators
Mandatory rotation and restriction on non-audit services

21

ACCOUNTING PROFESSION AND

PRACTICES

IFAC GLOBAL SURVEY

22

ACCOUNTING PROFESSION AND

PRACTICES

CHANGING ROLE

23

CHANGING ROLE
A new approach
Change of focus from regarding accounting as passive
phenomenon to active involvement in Shaping, Moulding,
Planning a role in the construction of setting in which it operates
Creating and enhancing value of organization by value creation
for:

Shareholders
Manager & Customers
Customers
All Stakeholders
24

CHANGING ROLE
A new approach
Ezzamel & Bourn describe Role at Strategic level as:

Accountings contribution lies in its abilities to perform three

functions
To shape the perceptions of decision makers in relation to
(strategic) issues at hand
To provide early warning to screening our irrelevant information
to reduce perceived time pressure and surprise
To buffer the impact and cope effectively with crises by shifting
priorities and perceptions that rely on information it provides

25

CHANGING ROLE
A new approach
The value-creating, potential of accounting at the strategic level
would help:

To develop system to provide a learning mechanism

that generates ideas
To enable decision makers to improve their
surveillance capabilities or their working environment

26

CHANGING ROLE
Change
Time
Instant communication and computation - speed

Space
Death of distance

Mass
Integrated Values are reducing mass
27

CHANGING ROLE
Change
Current Value to Organization

Ability to process transactions

Manipulate Data
Develop report based on historical data
New Role

Value added function

Develop new business intelligence and decision
support tool set
Abnormal users
28

CHANGING ROLE
Change
Need

To re-engineer processes and conceptual framework

To enhance the effectiveness of the new tools

Change in tool sets

Quill to ball point pen

Ledger book to computers with data base and
spread sheets
29

CHANGING ROLE
Change
New Tools

Artificial Intelligence based Decision Support System

Data Fishing
On-line Analytical Processing
Data warehousing

30

CHANGING ROLE

31

CHANGING ROLE
Accounting can play a role in strategically changing
Managerial Awareness
To realign their view towards a particular direction
To have the power to shift patterns or organizational
visibility so that concerns of the external world can
permeate and influence internal organizational affairs
To act as knowledge manager:
Knowledge is power
Communication systems are power systems

32

VALUE CREATION

ACM vs IEC Ratio

Assets

Tangible

Intangible

Commerce

Physical

Electronic

Market

National

Global

33

CHANGING ROLE
Attest Function
Attest function is the hall mark of the profession
despite change in demand by the shareholders in the
nature and speed
Gap in appreciation of the role of auditors
Subject of close review and criticism for:
Perceived inefficiency
Negligence
At times collusion with management

34

CHANGING ROLE
Attest Function
Core issues for Audit functions
Poor judgment
Incompetence
Negligence
Business considerations taking precedence over
Professional consideration

35

CHANGING ROLE

Real concerns about the:

Adequacy of processes
Level of skills
Training and development
Quality of evidence
Vagueness in opinions including concerns about
independence and objectivity

36

CHANGING ROLE
The concerns about these Services were described by
John Whitney as follows:
Timeliness
Trustworthiness
Trajectory
Timeliness Traditional Accounting is a fuzzy
approximation of distant past Real time
Trustworthiness relates to failures of a number of
companies following the receipt of clean opinions
37

CHANGING ROLE
Effectiveness of any control environment can not be assessed
without:
Assessment of willingness of people to accept these controls
Willingness is determined by the nature and number of
controls
Man can defeat any system man can devise

38

CHANGING ROLE
Other Role of Practicing Members

Transaction Services
Corporate Finance

Tax Advisory and Tax

Compliance

Forensic Accounting
Corporate Recovery

IT Consulting
Business Process

Assurance based
Advisory Services
Management Assurance
Services
Knowledge Management

improvement
Supply chain management
HR Consulting
ISO Consulting and
Certification
Web Assurance
39

ACCOUNTING PROFESSION AND

PRACTICES

ENHANCING SKILLS

40

ENHANCING SKILLS

Influence
Facilitation Skills
Communication openness, trust
Team building
Flexibility
Steadfastness

Emotional intelligence

41

ENHANCING SKILLS

Gradual change in emphasis on general

skills, cognitive and behavioral skills
Routine skills
Analytical and design skills
Appreciation skills
Personal skills
Interpersonal skills

42

ENHANCING SKILLS
Core Skills and Cognitive Skills are agents for
success
Excellent Performance is greatly dependent on
According to Sociologists, a
Emotional
Skills
Self awareness
Self regulation
Motivation
Empathy
Social Skills

Persons success results from:

20% I.Q. + 80% E.Q.
I. Q. Intelligence Quotient A
measure of an individuals ability
to learn, understand and reason
E. Q. Emotional Quotient
Which measures the ability to
relate to others, to understand
oneself and usefully direct ones
43
emotions

ACCOUNTING PROFESSION AND

PRACTICES

VALUE CREATION

44

VALUE CREATION

Global and Regional contribution

Raise standards in Ethics

Raise quality of Education and Training
Continue emphasis on enhancing professional
competency and CPD
Plan for Skills development for expanding role
Focus training on detection for financial fraud and
money laundering

45

VALUE CREATION

Global and Regional contribution

Focus on enhancing corporate ethics for the entire

Financial Reporting chain
Strengthen Quality Control and independent oversight
National Accounting bodies can not continue to act in
isolation and have to collaborate to provide leadership
to the profession

46

VALUE CREATION
The Value of Audit
Audit plays a valuable role in governance and financial
reporting
A strong business led Accounting Profession is
important for market confidence
The profession is publicly accountable and our role as
Auditors is to underpin confidence

47

VALUE CREATION
The Value of Audit
Make professional judgment on the integrity of information;

that delivers accurate reporting and governance

that enables people to make financial decisions
based on the highest technical and ethical standards
that on which basis a society depends for effective
operations
that meet peoples needs and aspirations

Well performed audits will continue to play a valuable

role in governance and in financial reporting .
48

VALUE CREATION

Value creation by Structural Reforms

Standardize the intake eligibility, curriculum and

Training Regulations Convergence of Learning and
Professional Development
Encourage integration of Firms either to merge or
enter into network Firm relationships to enable the
Firms to provide the high quality depths and breadths
of services required by the market place

49

VALUE CREATION

Value creation by Structural Reforms

Continue focus on Ethics and Independence

Develop a proactive role in shaping and developing the
Regulatory response and changes
Play an active role in global standards setting bodies
Ensure that we can continue to attract high quality people

50

VALUE CREATION
Calculative and visibility elements combined can be
a potent weapon for value creation
Being able to convert idea into value, accounting
can be used as instrument of organizational
governance and control
At operational levels many activities can be brought
into calculative spheres

51

VALUE CREATION
New organizational interdependencies can be
created and couplings between accounting and
other spheres or organization can be forged
These initiatives can put accounting and
information systems it creates, to be used as active
participants and important instruments to articulate
actions and create value for the organization

52

VALUE CREATION
At strategic level accountings contribution lies in its ability to
perform three functions for decision makers
Shape perception in relation to strategic issues at
hand
Provide early warning by screening out irrelevant
information to reduce perceived time pressure and
surprises
Buffer impact and cope effectively with crises by
shifting priorities and perceptions that rely on
information it provides

53

VALUE CREATION
Accounting can also act as change agent
It has power to shift patterns of organization visibility so that
concerns of the external world can permeate and influence
internal organizational affairs
It must provide not only internal data but also provide
information concerning organizations market and
competitors

54

VALUE CREATION
Finance Function in new millennium will

Embrace analysis and value addition in its orientation

Be consultative business partner and advisor; a
participant and leader in decision making
Be strategically-oriented and focus on performance
enhancement
Mastering new role require more than learning new skills, it
entails
Change in mindset
Build culture of continuous improvement and value creation
55

VALUE CREATION
What must be known to those who seek to participate
in the Cycle of Learning
business process analysis
business process redesign and improvement
value profiling
strategic cost analysis
capacity analysis
advanced cost management techniques
benchmarking
activity profiling
value-chain analysis
56

VALUE CREATION
What must be known to those who seek to participate
in the Cycle of Learning
bottleneck and flow management
change management
competitive analysis
information system design
integrated performance measurement
cost analysis and the development of cost tables
operational process analysis and redesign
target and life-cycling costing

57

ACCOUNTING PROFESSION AND

PRACTICES

CONCLUSIONS

58

CONCLUSIONS

Accountancy Profession still has a great potential and it

has shown tremendous amount of resilience to sail
through severe crises
The dynamism of the profession is its major strength
The global convergence of the Accounting, Reporting and
Auditing Standards is creating a global common language

59

CONCLUSIONS
For the Value Creation, the collaboration on a Global basis
in general and on a Regional basis in particular is a key
pre-requisite. Such an effort has to be directed to ensure:

High Quality Education

Robust Curriculum
Enhanced Skills development
Structured and participative Rigorous Training
process
Independent and transparent Quality Control process
Independent Disciplinary process

60

CONCLUSIONS

Proactive process of Institutional response to

demands for services
Publicity plan to narrow perception gap
Move towards international qualification
Concentrate to resolve liability issues Bannerman
case, Western Star case re-disclaimer to third
parties

61

CONCLUSIONS
SAARC Region:
To fully exploit the demographic advantage, plans are
required to:

Attract best talent

Converge Curriculum and Training process
Develop Post Qualification Specialization streams
Focus on management and multi-function skill sets
Concentrate on developing enhanced skills sets
including Emotional Intelligence

62

CONCLUSIONS

The dynamic value creation capability and potential of the

Profession which has the core values of integrity and ethics
as its strong roots would ensure that it continues to remain
a leading and premier profession in the twenty first century.
We as Accountants are enjoying unique privileges, including
monopoly in certain respects, provided that we maintain our
commitment to Quality, Transparency, Ethics and Integrity.

63

CONCLUSIONS

Our biggest Asset has been the Trust and Confidence

reposed in us by the society at large and our mission is not only
to preserve this Asset but continue to enhance its fair value
for all stake holders in particular and public at large in general.

64

Thank you

65

Presenters contact
details
SYED MASOUD ALI NAQVI
KPMG Taseer Hadi & Co.
+92 (21) 568 5847
mnaqvi@kpmg.com
www.kpmg.com.pk

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although
we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that
it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination
of
the
particular
situation.
2005 KPMG Taseer Hadi & Co., the Pakistan member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in Pakistan.
The KPMG logo and name are trademarks of KPMG International.

66

Some Regulatory regimes follow the diction

that Regulators need not to explain.
Julius Ceasar Scene where Decius implores
Ceasar atleast to explain why he will not
come to the Senate. Most mighty Ceasar, let
me know some cause / lest I be laughed at
when I tell them so, Ceasar replied The
cause is my will: I will not come / that is
enough to satisfy the Senate.
67

 Public expectations matter. If there is an

expectation gap the problem is not that the
outsiders dont understand what professionals
do, so the expectation gap is an invitation to
improve your education so that outsiders
simply understand better .

68

IFAC GLOBAL SURVEY

CORPORATE GOVERNANCE
Corporate governance has improved and the balance
between costs and benefits has become better

POSITIVES
Increased awareness that good governance counts
New codes and standards
Improved board structure
Improved risk management and internal control
Increased disclosure and transparency
69

IFAC GLOBAL SURVEY

CORPORATE GOVERNANCE

AREAS OF CONCERN
Governance in name but not in spirit
Development of a checklist mentality
Overregulation
Personal risk and liability for directors and management

70

IFAC GLOBAL SURVEY

CORPORATE GOVERNANCE

FURTHER IMPROVEMENTS
Continue to focus on behavioural and cultural aspects of
governance
Review existing rules
Further improve quality of directors
Better relate remuneration to performance
Expand view from compliance governance to business
governance

71

IFAC GLOBAL SURVEY

FINANCIAL REPORTING PROCESS
The financial reporting process has improved and the
balance between costs and benefits is about the same

POSITIVES
Convergence to a single set of global financial reporting
standards
Improvements to regulations and oversight
Board of directors/management taking ownership of
financial reporting
Improved internal control over financial reporting systems
Improved technology for preparing financial reports
72

IFAC GLOBAL SURVEY

FINANCIAL REPORTING PROCESS

AREAS OF CONCERN
Transition to International Financial Reporting Standards (IFRS)
Complying/reconciling accounts to different financial reporting
standards
Complexity of financial reporting standards
Liability restricting process

73

IFAC GLOBAL SURVEY

FINANCIAL REPORTING PROCESS

FURTHER IMPROVEMENTS
Continue convergence to one set of financial reporting standards
Simplify and clarify financial reporting standards more
principles and fewer rules
Ensure that boards of directors pay attention to the quality of
financial reports
Provide additional education and training for preparers

74

IFAC GLOBAL SURVEY

AUDIT OF FINANCIAL REPORTS
The audit of financial reports has improved and the balance
between costs and benefits is about the same

POSITIVES
Improved auditing standards and processes
Increased awareness, commitment and competence of
auditors and audit committees
More risk-focused audits
Greater auditor independence
Improved quality review and auditor oversight
75

IFAC GLOBAL SURVEY

AUDIT OF FINANCIAL REPORTS

AREAS OF CONCERN
Reduced scope for professional judgment
Overregulation
Liability fear leading to boilerplate audits and lack of innovation
Limited auditors communication with external stakeholders
Limited choice of audit firms
Increased audit cost relative to perceived benefits

76

IFAC GLOBAL SURVEY

AUDIT OF FINANCIAL REPORTS
FURTHER IMPROVEMENTS
Continue to focus on independence, objectivity and integrity
Converge to one set of global, principles-based auditing
standards over time
Ensure consistent use of audit standards and safeguarding
of quality within audit firms
Improve auditors communication, both internally and
externally
Consider limited/proportional liability for auditors
Remove barriers that limit choice of auditor

77

IFAC GLOBAL SURVEY

USEFULNESS OF FINANCIAL REPORTS
The relevance and reliability of financial reports
have improved, but the understandability of
financial reports has not improved. Respondents
preferred annual reports to real time or monthly
information, found analyst presentation useful,
and would like to have more business-driven
information. The survey also showed mixed
results about the usefulness of XBRL. In
addition, paper financial reports remain useful.
78

IFAC GLOBAL SURVEY

USEFULNESS OF FINANCIAL REPORTS

POSITIVES
Better financial information due to improved standards,
regulation and oversight
More disclosure and comparability in financial reports
Improved reliability
Increased emphasis on narrative reporting
Easier access to financial information

79

IFAC GLOBAL SURVEY

USEFULNESS OF FINANCIAL REPORTS

AREAS OF CONCERN
Reduced usefulness due to complexity
Focus by companies on compliance instead of essence
of the business
Regulatory disclosure overload
Use of fair value
Difficult and often changing financial reporting standards
Lack of forward looking information

80

IFAC GLOBAL SURVEY

USEFULNESS OF FINANCIAL REPORTS

FURTHER IMPROVEMENTS
Improve communication within the financial reporting supply
chain
Include more business-driven information in financial reports
Better align internal and external reporting
Improve users access to electronic data, for examples, XBRL
Encourage short-form reporting focusing on the material
issues

81