Interview with Samia Msadek, Director, Governance Global Practice, World Bank
Interview by Henri Fortin, Global Lead for Governance and Financial Reporting
Henri Fortin: What opportunities are there for the accountancy profession to support sustainable economic growth globally?
The accounting profession can support development in a number of ways. Until now, much of the focus has been on the profession’s role in supporting growth in the private sector. Through better, more reliable and transparent financial information, accountants and auditors contribute to the efficient allocation and management of resources, help companies attract investment and access credit. In the aggregate, then, they support an environment of trust that allows businesses to flourish. This is an essential role; but I would also like to raise other areas in which the profession has an important role, and how it can be strengthened and expanded.
In the public sphere, the accounting profession supports a public sector that is more transparent and accountable to its citizens. Effective financial reporting is critical to governments’ understanding of their fiscal position and prospects. It is also crucial for providing legislators, markets, and citizens with the information they need to make efficient policy decisions, and to hold governments accountable for their performance.
Further, illicit financial flows (IFF) are a significant threat to global economic growth. The Global Financial Integrity (GFI) organization reports that, in 2013, the amount of IFF from developing countries was greater than the combined total of foreign direct investment (FDI) and net annual official development assistance (ODA). GFI also reports that fraudulent invoicing of trade transactions was the largest component of illicit financial flows. Responsibility rests with accountants to act in an ethical way to prevent such practices in organizations.
Last but not least, the profession can contribute significantly to the achievement of the Sustainable Development Goals (SDGs) that aim to end poverty, protect the planet and ensure prosperity for all. The ability of countries and corporations to measure progress, monitor impact and report on achievements in these areas will be critical. This is where, in my opinion, accountants have a key, but easily overlooked, role to play.
Henri Fortin: How does the World Bank support the accounting profession and the global accounting and auditing reform agenda, and what have been the results?
The World Bank has been providing support in a number of ways. First, we have been working with our partner countries to support the adoption of international standards of financial reporting and auditing (IFRS and ISA). We now see the widespread adoption of international standards, meaning that auditors and accountants increasingly speak the same language worldwide. Global standards promote transparency and enable the easy comparison of transactions across borders and jurisdictions.
We support international standards not just for the private sector, but for the public sector as well. In this regard, we have been building capacity on a global scale for the effective implementation of the International Public Sector Accounting Standards (IPSAS). In both the public and private sectors, the World Bank has been delivering targeted capacity development to professional accountancy organizations and regulatory authorities so that they can implement international standards effectively, thereby reaping the benefits of having a common, global financial language.
Second, we have been working closely with our partner countries in developing effective independent audit oversight systems, which play an important role in fostering public trust in financial reporting. However, countries face substantial challenges in structuring, funding, staffing, and operating such systems. The World Bank has already developed a number of strategic partnerships and is committed to facilitating further engagement among partner countries, including through technical assistance and peer exchange, in order to build and enhance sustainable systems of public oversight for the audit profession.
Finally, we have a growing agenda on state-owned enterprise (SOE) financial accountability, controls and transparency. SOEs are often very significant in their respective domestic economies: they are charged with managing significant state assets and can substantially impact the fiscal environment. Yet, there is little reliable information about their importance in today’s global markets — or about the advantages granted to SOEs by governments.
Transparency and disclosure are vital in holding SOEs accountable for their performance. An effective reporting regime requires SOEs to achieve the same standard in reporting, control, and audit frameworks as other significant corporate or public-interest entities. This means that SOEs should produce financial statements according to high-quality accounting standards, and increase the effectiveness of nonfinancial reporting. Furthermore, they should disclose publicly both financial and nonfinancial information. Therefore, I consider improving the transparency and reliability of SOE financial information to be one of the most pressing issues on the global accounting and auditing reform agenda.
Henri Fortin: What do you regard as the main challenges and opportunities for the profession?
I believe that the main opportunities lie beyond accounting, auditing, and financial reporting. Of course, this will be the core business of much of the profession, but we need to look beyond. One example of this is using integrated reporting (<IR>), which incorporates non-financial as well as financial data. By communicating all of the factors that can affect a business over time, an integrated reporting approach will help businesses and governments demonstrate how they create value over the short, medium and long term. This can, in turn, ensure that capital—environmental, financial, human, intellectual, and social—is allocated more efficiently and productively. There may also be opportunities for improved reporting in the public sector through <IR> and Natural Capital Accounting (involving the calculation of total stocks and flows of natural resources and services in physical and/or monetary terms).
Another opportunity is to move beyond compliance work at the small and medium-sized enterprise (SME) level by assuming the additional role of trusted business advisor. This transition will involve accountants being consulted on a much wider range of financial issues than accounting, auditing and tax services. Trusted business advisors can help improve a company’s performance and, where possible, enable it to access finance and grow.
In this regard, it is important to address the skills gap in the profession. At times, there is a mismatch between the skills that businesses and the public sector require, and those that accounting professionals are able to offer. There are various ways that this gap can be reduced, including the development of qualification frameworks, strengthening regional organizations, and the professionalization of accounting technicians, which is an approach being taken in New Zealand and South Africa.
Finally, technology is increasingly at the heart of everything we do and offers enormous potential through the use of intelligent accounting systems, especially for micro and smaller businesses. The accountancy profession needs to adapt and embrace modern tools and information technology. However, buying software can be expensive and a challenge when it comes to compliance and language. We regard the opportunities that information technology (IT) offers for education and training as vital. Therefore, the World Bank has pioneered the development of educational software to teach International Standards on Auditing (ISA) through simulated audits, to name just one example.
Henri Fortin: As a former auditor, you often speak passionately about many issues relating to the accounting profession and its role. What issues have been sparking your passion recently?
As a former auditor, woman, and development practitioner, I would say that I have been thinking quite a bit about gender, its related development challenges, and how the profession can play a role. More and more across the world, women are entering the accountancy profession at a higher rate than men. This offers an opportunity for the profession to play a leadership role in addressing global gender equality and inclusion.
However, an important area that still needs to be addressed is the gender pay gap. In countries such as the United Kingdom, where recent research found that women in accountancy earn 83 percent of the basic salary of their male colleagues, companies employing more than 250 people will have to disclose the difference between the salaries of their male and female employees beginning in 2018. These disclosures will be published on a public, searchable website. Likewise, the United States government issued new proposals at the end of January 2016 requiring all companies with at least 100 employees to disclose salaries disaggregated by gender, race and ethnicity. I hope that other countries will follow suit to ensure greater equality in the workplace.
I also consider that the accountancy profession is well placed to support small and medium-sized practices and SMEs to be more gender inclusive through greater workplace flexibility and mentoring. By removing the obstacles that have traditionally restricted women from realizing their full potential, the profession can contribute to stronger economic growth in a sustainable and equitable manner.
The World Bank Centre for Financial Reporting Reform is organizing a series of events between April 26-28 under the topic Financial Information: Catalyst for Growth. For further information, please visit:www.worldbank.org/cfrr