statement of police of council en ingles[1]

Junio 1995

STATEMENT OF POLICY OF COUNCIL *

RECOGNITION OF PROFESSIONALACCOUNTANCY QUALIFICATIONS

CONTENTS

ParagraphIntroduction 1-6

The Changing Rules of Recognition of Accountancy Qualifications 7-12

Principles of Recognition 13-27

Process of Recognition 28-30

Barriers Considered as Unrelated of Professional Qualifications 31

Appendix 1: Key provisions of the GATS

Appendix 2: Examples of Mutual Recognition Initiatives

____________________*Effective ay 2000 the IFAC Council was renamed the IFAC Board

STATEMENT OF POLICY

RECOGNITION OF PROFESSIONAL ACCOUNTANCY QUELIFICATIONS

Introduction

1. The mission of the International Federation of Accountants (IFAC) is the worldwide development and enhancement of an accountancy profession with harmonized standards, able to provide services of consistently high quality in the public interest. Inherent in this mission statement is the understanding that services of consistently high quality implies that professional standards governing those services are also of consistently high quality. Consistently high standards will facilitate the international practice of the accountancy profession.

2. Accountants have traditionally practiced internationally, both as individuals and as firms. The main impetus behind this movement has been the globalization of business, which has accelerated especially m recent years. As enterprises became multinational, they asked that their financial advisors be equally multinational. As a result, professional accountants have organized themselves into global organizations, providing a wide range of services throughout the world.

3. Notwithstanding these developments, national professional institutes and national regulatory authorities have been reluctant to accept the professional qualifications of foreign accountants for regulated services. Conditions of residence, citizenship, special educational criteria and examinations have been set, conditions which are, in many cases, impossible to meet. Moreover, some of these criteria do not pertain to the professional qualifications. Given the international scope of the accountancy profession, professionally qualified accountants, both as individuals and firms are increasingly seeking to be recognized in foreign countries, and often see these barriers as unreasonable.

4. The demand for recognition of foreign accountancy qualifications has been given special impetus by the successful completion of the Uruguay Round on Trade negotiations, and the General Agreement on Trade on Services (GATS) The GATS addresses regulatory obstacles to international trade and foreign investment in service industries, including the cross-border practice of accountancy and other professions. It sets out a series of rules to discipline government intervention in the marketplace, to ensure that foreign or internationally-affiliated service providers, firms and professionals enjoy the same privileges as their domestic counterparts competitors with respect to government regulation and to remove discriminatory obstacles to market entry and practice by persons from other countries. Signatories to the GATS and its provisions bind their national and sub-national regulatory authorities.

5. The Council* of IFAC acknowledges that a truly international market for accountancy services, with equal access to all qualified professionals, is consistent with its mission, and it encourages national professional accountancy organizations and regulatory/licensing authorities to provide for recognition of foreign accountancy qualifications. Of more concern, however, is the public interest, and IFAC believes that any mutual recognition efforts must insure that the overriding need for high standards must be scrupulously respected. In this regard, benchmark international standards, such as those promulgated by IFAC and IASC, can be especially useful in meeting this need.

6. Given the above situation, the Council' of IFAC has issued this Statemen1 of Policy, to be used by its member bodies and other interested parties. The provisions of this Statement of Policy will assist with the implementation of the provisions of GATS, as well as helping to insure that the proper standards of professional qualifications are also maintained.

________________________*Effective May 2000 the IFAC Council was renamed the IFAC Board

STATEMENT OF POLICY2


The Changing Rules of Recognition of Accountancy Qualifications

7. Traditionally, the mutual recognition of qualifications of professional accountants of one jurisdiction in another has been arranged between professional organizations with close relationships and with similar traditions, goals and objectives. Sometimes such recognition has been extended by licensing authorities where permission to undertake audits/attest or other reserved functions has been extended by a licensing authority rather than by a professional body.

8. Generally, the recognition is conditional upon an applicant satisfying some agreed additional education, experience, examination or residence requirements to recognize differences in the jurisdictions concerned. Because of sometimes conflicting economic, social and political factors, such arrangements were not widespread. Diverse requirements for qualification as an accountant variances in educational systems anf1 differences in accounting and auditing standards and related laws an regulations, as well as differences in the way the profession is regulated in various countries, has tended to inhibit mobility. Additionally, criteria related to citizenship and residency have added further barriers.

9. The new GATS addresses regulatory obstacles to international trade and foreign investment in service industries, including the cross-border practice of accountancy and other professions. by setting out rules that intend to:

Ensure that foreign or internationally-affiliated service providers. firms and professionals enjoy the same privileges as their domestic counterparts or competitors with respect to government regulation:

Remove discriminatory obstacles to market entry and practice by persons from other countries, by concentrating solely on those issues that relate to professional qualifications; and

Provide transparency to all service providers as to the rules governing recognition of qualifications.

Although they apply to the full range of service industry and professions, two of the GATS rules have particular relevance to the accountancy profession (Article VI on "Domestic Regulation" and Article VII on the "Recognition of Qualifications and Licenses" which are in Appendix 1).

10. In essence, GATS seeks to ensure that persons from one country wishing to provide services in another enjoy the same privileges as their domestic counterparts. Recognition requirements may not constitute unreasonable barriers to trade in services. It is expected that rules will be developed on a sector by sector basis to ensure that licensing requirements are based on objective and transparent criteria and are not more burdensome than is necessary to ensure the quality of the service.

11. The GATS requires that all countries have adequate procedures in place to verify the qualifications of professionals from other countries seeking the right to offer services within their jurisdictions. This will have implications both for the professional accountancy organizations, as well as for the licensing and regulatory authorities.

12. Although the GATS is multinational in scope, it does provide for bi-lateral implementation, IFAC believes that the most effective way to achieve recognition is through bi -lateral initiatives. The re are differences in educational and examination standards, experience requirements, professional issues, regulatory influence and various other matters, all of which make implementing the recognition on a multilateral basis extremely difficult. Bi-lateral negotiations will



enable the countries involved to focus on the key issues related to their two environments. Once bi-lateral agreements have been achieved, however, this can lead to other bi-lateral agreements, which will ultimately extend mutual recognition more broadly.

Principles of Recognition

13. The GATS requires that criteria for recognition of qualifications may notexceed what is necessary to ensure the quality of service. Each country isexpected to have a methodology for comparing professional qualificationsand this must be applied in a fair and consistent manner to all applicants.IFAC recommends that the appraisal process be founded upon the keycomponents of a professional qualification, falling into the following threeareas:

Education—entry standard s/body of knowledge

Examinations—tests of professional competence

Experience—relevant to the practice function.

14. In implementing the appraisal process, the following principles aresuggested. These parallel the recommendations of International EducationGuideline (IEG) 9 and are put forward because they have been found to bewidely acceptable within the profession in meeting the need to uphold itshigh standards and protect the public interest. Additionally, they can assistcountries that are negotiating mutual recognitions in making informeddecisions as to the degree of equivalence in basic educational requirements.This is a crucial procedure, since, when there is sufficient equivalence in thebasic education requirements of the two bodies, the negotiating parties canproceed more efficiently.

Education

15. Initially, the subjects and skills covered in their bodies of knowledge shouldbe compared. The theoretical knowledge to be contained in the body ofknowledge of persons seeking recognition should include at least thefollowing subjects:

Analysis and critical assessment of financial statements: Audit; Consolidated accounts; Cost and management accounting; General accounting; Interna! control systems: Legal and professional requirements relating to the exercise of the reserved

function(s) concerned: and Standards relating to financial statements.

16. In addition. the body of knowledge should cover at least the following; areasinsofar as they are relevant to the reserved function(s) concerned:

Basic principles of the financial management of undertakings; Business, general and financial economics: Civil and commercial law: Information technology and systems; Law of insolvency and similar procedures; Mathematics and statistics: Provision of financial services, advice, etc.;



Professional conduct and ethics; Social security and law of employment; and Tax law.

Applicants should have covered these subjects in a breadth and depth sufficient to enable them to perform the relevant function to the expected standard. In order to ensure that this is the case, a detailed review will need to be made of the respective educational programs and their content.

17. Areas of truly substantial difference (in terms of breadth and depth) in subjects which are considered essential to the practice of the profession in the respective countries should be identified. Applicants seeking recognition will accept that they may be required to take further courses, gain local experience or undergo some further assessment in key subject area(s).

18. There is considerable international diversity in the educational backgrounds of professional accountants and sometimes in the quality of education itself. in particular, in many countries, an undergraduate degree in accounting is required, while others accept different education and/or accept experience in lieu of formal education. Educational standards should not be considered in a vacuum. Rather they should be viewed in the overall context of the experience required for recognition and of evaluation of the professional examinations taken by an applicant of his or her professional background.

Examinations

19. Candidates for recognition of professional qualifications should demonstrate that they have passed an examination of professional competence. This examination must assess not only the necessary level of theoretical knowledge but also the ability to apply that knowledge competently in a practical situation. Objective evaluation of professional examinations thus becomes a key component of the recognition process.

20. Member bodies should not only satisfy themselves that the assessment(s) undergone by applicants indeed tests the body of knowledge and the ability to apply it, but that the policies and procedures for its construction, security and marking are adequate to ensure the integrity of the assessment process. Agreement should also be reached on the need for a periodic review of the education and assessment process for qualifications being recognized so as to ensure that the conditions for recognition continue to apply.

21. The content, rigor, scope and length of professional examinations administered by professional bodies or other examining authorities also vary. Some are case study based, while some make extensive use of objective testing. Some are highly computational, others more discursive.

The task is to ensure that applicants have been adequately assessed in relevant areas to the extent necessary to enable them to operate competently in the reserved functions of their choice.

Experience

22. It is crucial to any professional to not only have a sound theoretical knowledge but also to be able to apply that knowledge competently in the world of work.



23. It is suggested that, prior to recognition for the purposes of performing a reserved function, an individual should have completed a minimum of two ] years approved and properly supervised practical experience primarily in the area of the function concerned and in a suitable professional environment.

24. Member bodies, or other authorities considering recognition of other qualifications, should assess the respective experience requirements and determine how to deal with any emerging differences. Differences normally relate to:

The nature and extent of required experience (for example, in some countries, experience outside public accounting is not regarded as acceptable for purposes of recognition of practice),

The length of the period of the experience gained, and The procedures required to certify the experience gained (for example, some

countries require employers attestation, while others rely on periodic reports by those gaining the experience).

Any assessment will need to have due regard to the extent of experience relevant to the reserved function which has been obtained by the applicant. The analysis might result in a requirement that, before recognition in the jurisdiction of the host organization, an applicant might be required to, undergo further experience.

25. The host country may also seek to impose a period of practical experience in the host country itself to demonstrate competence in the host country laws, practices and/or regulations. In these instances, such a requirement should be for that purpose only. It should not be unreasonably long for an individual who otherwise meets the basic practical experience requirement, as in paragraph 23.

Other Factors to be Considered

26. Although the basic elements of education, examination and experience willbe the foundation of any recognition arrangements, there are several otherimportant factors to be addressed:

Diversity in accounting and auditing standards may cause problems inthe matter of recognition. Such standards develop in response tochanging social, economic, legal and political environments. Thosecountries with extensive technical standards may be hesitant toauthorize for practice persons from countries with significantlydifferent technical standards, particularly in the area of the reserved function. This difficulty can be resolved if it is generally accepted that applicants may reasonably be expected to demonstrate an adequate knowledge and understanding of the relevant standards as applied in the host country.

Ethical practices differ between countries. When a professional accountant is recogn¡2ed in a host country, he/she would ordinarily be subject to die host country ethics. Where differences appear significant, however, the host country may be reluctant to accept foreign accountants. As with accounting and auditing standards above, demonstration of knowledge of host country ethical practices is a reasonable expectation. Additionally, reference to the IFAC Cade of Ethics for Professional Accountants can also be helpful in evaluating the significance of differences.

_________________________1The suggested tow year requirement was subsequently modified by the Education Committee to three years. See International Education Guideline (IEG) 9, paragraph 49 (revised October 1996), to reflect current circumstances.



Clearly, if one is to practice competently one needs reasonable written and oral skill in the generally used business language of the host country.

Requirements for continuing professional education {CPE), as opposed to pre-qualification education in paragraphs 15-18 above, are becoming more common within the profession as a condition of a right to practice. The effect of a compulsory requirement in this area will need to be addressed since in many countries,. CPE is often voluntary. Difficulties will arise where one body has- a mandatory CPE policy in place and this is not the case in the jurisdiction of an applicant. In such circumstances, some further qualifications may need to be agreed for persons seeking recognition by the body which has CPE requirements in place. However, any arrangements being made should be reasonable and designed to facilitate applicants in meeting the necessary requirements within a reasonable period.

27. The GATS relates to mutual recognition of professional qualifications. Itdoes not relate to reciprocity of membership in professional organizations.This will be especially important in those countries where thelicensing/practice authorization function is separate from the professional accountancy organization. IFAC believes that the spirit of mutual recognition extends to membership. It encourages al I professional accountancy bodies to develop membership classifications or other processes by which recognized foreign professionals can also be pan of the accountancy organization. Membership for recognized foreign professionals will help those individuals maintain and enhance their competence in host country practices by access to technical publications, contact with local professional accountants, knowledge of ethical practices and other issues. Enhancing technical competence is of direct benefit to the public interest.

Process of Recognition

28. In attempting to establish procedures for recognition of foreign qualifications, care must be taken to address the differences in the organizational structure for the profession. In a country where the accounting profession/licensing process is not centralized, a national organization might need to negotiate on behalf of its members at provincial-or state level with local licensing authorities, which might themselves have widely differing requirements. In some countries, recognition for practice purposes requires membership of the locally recognized accountancy bodies, while in others recognition is gained either through affiliation with such a body or from a governmental licensing authority.

29. The GATS requires that each country establish a process to provide for recognition of foreign qualifications. Moreover, the process must be transparent and be equitable for all those individuals seeking qualification. Some countries and member bodies may already have such processes in place while others have not. In the emerging climate of greater global mobility, the former will now need to review their systems and to create more formal structures and the latter will need to put appropriate facilities in place without delay. The following matters should be addressed:

Close lines of contact with professional organizations in other countries, to assess the different standards.

A process by which the educational system, curricula and degree programs in foreign countries can be assessed vis-a-vis the local requirements; this will be especially important in those instances where pre-qualification education does not always rely on the university system.

Evaluation of the examination system in foreign countries, both as to the content of the examination and the process.

Evaluation of the experience requirements and the way in which such experience is monitored and controlled.



Establishment of an agency review board, or similar structure, which will analyze the results of the processes above and publish and administer the program to facilitate recognition of foreign qualifications; such an agency would use international reference points (for example, IFAC's IEG 9) and would recommend special examinations and other programs to enable applicants to demonstrate competence in uniquely local requirements.

30. Inevitably, such structures will have cost implications. Administrative andlegal expenses are examples. These could be significant, It would bereasonable that applicants for recognition should be prepared to contributeto the costs incurred in dealing with their applications and to be aware fromthe outset of the extent of the charges involved. In some countries, thecost/charge element may be a matter for the state of which the professionalorganizations/licensing authority is acting.

Barriers Considered as Unrelated to Professional Qualifications

31. The GATS stipulates that qualification requirements should not constitute unnecessary barriers to trade in services and should not be more burdensome than necessary to ensure the quality of service and to protect the public interest.

32. Countries impose various restrictions that do not necessarily relate specifically to professional qualifications. Examples are:

Requirements that only citizens are eligible to receive professional titles or licenses;

Requirements that candidates for professional titles or licenses must have been resident in the licensing jurisdiction for a period prior to making the application;

Requirements that the licensed professional be permanently resident in or permanently established in the licensing jurisdiction; however, if the applicant is not permanently resident or permanently established, he/she could reasonably be expected to demonstrate that he/she intends to practice the reserved function; and

Requirements that an applicant attend a specified educational institution or requirements that only a university degree (with no consideration of experience or other types of training) will satisfy educational requirements.

IFAC believes that further research is necessary before it can be concluded as to whether or not such restrictions are unnecessarily burdensome. This research should give due regard, inter alia, to the impact on the capacity of the local national profession to develop itself.



Appendix 1

Key Provision of the GATS

Background

The Uruguay Round trade package. negotiated under the auspices of the General Agreement on Tariffs and Trade (GATT) included the first multinational agreement removing obstacles to accountants who wish to practice across borders. Some of these, such as exchange controls and visa restrictions, are faced in common with other service industries and providers. Others, notably difficulties in obtaining, certification to practice in foreign jurisdictions, are unique to the professions.

The multilateral agreement, the General Agreement on Trade in Services (GATS), addresses these problems in qualifying to practice in foreign jurisdictions in two ways.

1. First, its provisions on domestic regulation require countries to administer their licensing or certification rules in a reasonable, objective and impartial manner and forbids using them as disguised barriers to trade. To carry out this broad mandate, the agreement envisions the development of more specific binding disciplines in the future. Countries are also required to establish specific procedures for verifying the competence and credentials of professionals from other countries.

2. Second, the agreement encourages countries to recognize other professionals, either autonomously or through mutual recognition agreements. It further sets out guidelines to ensure that such agreements are not used simply to discriminate against professionals from countries that arenot party to them.

Articles of Special Interest to the Accountancy Profession

There are two articles within the GATS that are of particular interest to the accountancy profession:

Article VI on domestic regulation is one of the rules that only applies to accountancy in cases where individual governments have made specific commitments in their schedules. It contains three important features:

Governments agree to apply regulations affecting service industries and professions in a reasonable, objective and impartial manner so that they do not act as barriers to trade.

Qualification requirements and procedures, technical standards and licensing requirements should not constitute unnecessary barriers to trade in services. Further disciplines or rules shall be developed on a sector-by-sector basis to make sure such measures are based on objective and transparent criteria, are not more burdensome than necessary to ensure the quality of the service and, in the case of licensing requirements, do not in themselves serve as restrictions on the supply of the service. International standards should be taken into account in determining compliance with these principles.

All countries must have adequate procedures in place to verify the qualifications of professional from other countries seeking the right to practice within their jurisdictions.

Article VII on registration of qualifications and licenses applies across the board to all services and professions in all signatory countries regardless of whether specific commitments have been made. Like Article VI, this article has three features relevant to the accountancy profession:



Countries may choose their own approach to recognizing foreign qualifications and licenses, through unilateral recognition, bilateral reciprocal arrangements or international harmonization.

There is no obligation for a country to enter into such arrangements. However, if a country decides to do so, whatever approach is chosen must be applied in a consistent, objective and fair manner to all other countries seeking recognition of their professionals.

Countries are encouraged to cooperate with intergovemmental and non-govemmentaí organizations toward the establíshment and adoption of common internationaí qualifications and standards of practice.

Implementation

The operation of the GATS, as well as the GATT itself and a new agreement on the protection of intellectual property, wiil be overseen and administered by the new World Trade Organizaron (WTO). The GATS also creates a Council on Trade in Services made up of representatives from the signatory countries, to continué ¿otiations on outstanding íssues and otherwise to take up questions that arise in the operation of the services agreement,

It is known that, in the context of professional services, the Council on Trade Services wiil be establishing a working party when the agreement comes into forcé to o versee the implementation of services agreement and that its work relating to accountancy has been designated as "'a matter of priority."

The foílowing three stage agenda has been set fbr the working party:

1. The additional disciplines and rules envisioned by Article VI shouid be developetl to make sure that national qualification requirements and procedures, technical standards and licensing requirements in accountancy do not constitute unnecessary barriere to trade.

2. The use of intemational standards with respect to qualifications and the practice of accountancy should be encouraged through cooperation with relevant intemationai govemmental and non-governmental organizations. IFAC and the IASC are the obvious non-govemmental organizations to be involved in this effort.

3. The cross-border recognition of qualifications should be encouraged, in accordance with Article Vil, through the deveiopment of appropriare guidelines for recognition agreements.



Appendix 2

Examples of Mutual Recognition Initiatives

The European Union

The (rué legal foundation for the philosophy of mutual recognition was the 1957 Treaty of Rome. However, it took several decades to develop the necessary political w>'l- Tliis happened wíth The Single European Act 1986 which enshríned the philosophy of mutual recognition. The general system of mutual recognition of diplomas seeks to permit professionals in the European Union to circuíate more fteely ,md easily from one member state to another. This system concems only individuáis and ignores firms which may be part of the relevant profession. In addition, the directive relates oniy to establishment-based. provisión of Services and does not address the question of cross-border provisión of services.

The end result sought is the right of the professional to practice his/her profession in the hosi member state or provide services there under the same conditions as those to which professionals in that country are subject. The progressive impiementation of 'he first directive in member states and the effective organizations of local knowlcdge examinations for the accountaney profession should result in a significant inervase in the number of accountants benefíting from the mutual recognition of diplomas.Nonh America

The North American Free Trade Agreement (NAFTA) establishes basic rules and oblig;itii>ns to facilítate cross-border trade in services. Whilí recognizing the need for regulaüon, NAFTA encourages broader market access by províding that licensing requn.nnents must be based on objective and transparent criteria, such as proii'sjional competence. and must be no more burdensome than js necessary to enj-ntv :he quality'of service provided.

In 1991, an agreement was entered into between the Canadian Institute of Chartered Acivu^tants, The American Institute of Certified Pubíic Accountants and the Nat:o»;1| Association of State Boards of Accountaney which became effective in 5oir..\ sul not a¡i QS states in November 1993. A holder of one designation may qiu-¡:'\ for the other by passing local knowledge examinations and by meeting cer:.i:« ^xperience requirements. Cancüdates for reciprocal recognition, who qualify by íM.vsuig the local knowledge examinations of one of the bodies, will be exempt troni ;ÍÍO obügation to write the final qualiñeation examination of that body.
