MINISTERIAL CONFERENCE The Road to Europe – Program of Accounting Reform and Institutional Strengthening Vienna 16 March 2005 “Contribution of the Accounting and Audit Profession to Reliable Financial Reporting & Challenges in the Region” David Devlin FEE President 1

FEE  44 Member Bodies of professional accountants  From 32 countries  With 500,000 members  Working to build confidence in our  profession  integrity, and  high standards  2

Main Topics  Financial reporting  Auditing  Ethics  Smaller enterprises and audit firms  Member Bodies of FEE  Challenges in the Region 3

Financial Reporting  Aim of principle based, global standards to provide high quality financial reporting  European input to IFRS standards  Direct contributions of FEE to IASB  “Founding father” of European Financial Reporting Advisory Group – EFRAG  Major position paper on enforcement to EC, CESR  Consistent application of IFRS 4

Auditing  Aim of principle based standards to achieve high quality  European input to ISAs – global standards:  Direct contribution of FEE to IAASB  Views to EC and European oversight bodies  Major papers on external quality assurance and public oversight of auditors to EC and others  Consistent implementation of 8 th Directive on statutory audit 5

Ethics and Independence  Promotion of principles based standards, using threats and safeguards approach, with some consequent, logical prohibitions and extensive guidance  European input to IESBA (IFAC) global standards  Direct contribution of FEE  Views to EC  Survey on how EC Recommendation of Independence of Statutory Auditors has been implemented in EU member states 6

Ethics and Independence (2)  Avoidance of bad (for audit quality) regulations, such as:  Mandatory rotation of audit firms  Artificial, narrow view of auditors proper function  Conflicting and extra-territorial national requirements 7

Smaller Enterprises and Audit Firms Financial Reporting by SMEs  Application of 4 th (Company) and 7 th (Group) Directives on annual accounts a good legal basis  Full IFRS very demanding  Simplified IFRS standard being prepared  Joint FEE / EFRAG input 8

Smaller Enterprises and Audit Firms (2) Smaller Audit Firms  Current project on forming networks of smaller firms to support development and quality  Annual conference – next Versailles 7/8 September

Member Bodies of FEE  Benefit by contributing to FEE’s work  FEE involvement helps to promote consistent understanding and implementation of EU policy and laws  FEE has a profound knowledge of EU developments which we wish to share with potential new members – hence participation today  New member bodies must be recognised by government so that their own members are qualified to conduct all categories of statutory audit 10

Member Bodies of FEE (2)  Planned EU membership is important  Structure of profession, and good co-operation between all elements of it, also important  FEE can help with strategic direction of profession’s development, its contribution to new laws and regulations and with information  Example: Oversight arrangements – not exclusively a function of government officials 11

Education and Qualification  Aim of free movement of professionals and cross-border services  Covered by 8 th Directive on statutory audit and Directive on recognition of professional qualifications  Language barriers and translation issues are challenges in using global standards 12

Challenges in the region  Move to IFRS is demanding due to significant cultural differences and the inheritance of often rigid historical accounting systems  Standard setting is often state controlled and does not always reflect latest international trends  Capital markets and investor organisations are underdeveloped, therefore interests of other stakeholders including fiscal authorities take often precedence  Many professional bodies are in start-up situation facing large tasks and funding problems or dominated by state influence 13

MINISTERIAL CONFERENCE The Road to Europe – Program of Accounting Reform and Institutional Strengthening Vienna 16 March 2005 “Contribution of the Accounting and Audit Profession to Reliable Financial Reporting & Challenges in the Region” David Devlin FEE President 14