Global Accounting Standards Move Forward; Developing Countries Left Behind?

UNCTAD convenes leaders at the World Investment Forum in Qatar to promote a new accounting development toolkit to help developing countries catch up

Leading accounting experts met Sunday to discuss the critical role of corporate transparency and accounting in promoting investment and economic progress in less developed countries.

And a “toolkit” was introduced to help with the process.

“Accounting does not guarantee development,” said the moderator of the event, Prof. Nelson Carvalho of the University of Sao Paulo, Brazil.  “But development will not be achieved without a sound accounting infrastructure.”

Participants at the meeting discussed at length what they say is a growing “accounting infrastructure gap” between industrialized and developing nations.

“Today, many developing countries lack some of the fundamental aspects of an accounting infrastructure,” said UNCTAD Deputy Secretary General Petko Draganov.  “Institutional requirements, regulatory requirements and human resource requirements go un-met.”

Although more than 100 countries already have adopted International Financial Reporting Standards (IFRS), the majority of developing countries and least developed countries (LDCs) have yet to put them to work. Most face difficulties with insufficiently established regulatory systems and related institutions.

Sunday’s high-level session attracted high level experts from around the world and featured senior government officials, standard setters, and regulators.  The purpose of the gathering was to address the challenges involved in building “accounting infrastructure” in developing countries and transition economies.

Transparent financial reporting systems and corporate governance mechanisms are crucial for helping investors to assess risks when deciding whether or not to channel domestic or foreign direct investment (FDI) into developing countries – and FDI is crucial for economic progress in such nations. High-quality corporate reports foster the critical factor of confidence among investors and others involved in helping businesses to grow.  They also enhance comparability, transparency, credibility, and financial stability.

Nations and domestic businesses that do not offer these advantages are handicapped in the international competition for FDI.

Developing countries and transition economies see the need, but are struggling to comply with international requirements in this area. The accounting infrastructure of many least developed countries is minimal to non-existent.  More than ever, participants in the meeting said, it is crucial to assist these countries to add this capability so that they can better manage their own scarce resources and attract international investors.

During the event, UNCTAD launched its new Accounting Development Toolkit, which consists of an Accounting Development Framework and a set of Accounting Development Indicators.  The Toolkit is designed to provide guidance to government officials seeking to gauge the current level of development of a country’s accounting infrastructure.  It can help them identify gaps and define priorities, and assist them in focusing national efforts to improve accounting infrastructure.

“Member States now have at their disposal a framework and measurement tool for accountancy development,” said Mr. Draganov, noting that about half a dozen countries have embarked, or are about to embark, on pilot-testing the toolkit.

The toolkit is the product of UNCTAD’s Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR). Based on international benchmarks and good national practices, the Toolkit covers financial and non-financial aspects of corporate reporting: financial accounting for large and small enterprises, reporting on environmental issues, corporate social responsibility, and corporate governance. The Toolkit helps policy makers better navigate the complex interconnected network of institutions, regulations, and human resources that make up a country’s accounting infrastructure.

“The Accounting Development Toolkit is designed to address the dynamic evolving world of accounting practices,” said Tatiana Krylova an UNCTAD expert on the topic. “As such it is the subject of continual review and improvement by the international experts of the ISAR working group.”

For more than 25 years, ISAR has contributed to global progress in corporate accounting and reporting. A group of more than 300 experts from over 100 countries, ISAR developed the main components of the Toolkit during a two year process involving annual meetings in Geneva , special consultative group meetings, and a series of national roundtables.