THE DISCUSSION PAPER OF THE IFAC ON PRACTICAL EXPERIENCE AND THE TURKISH EXPERIENCE

Transcription

1 THE DISCUSSION PAPER OF THE IFAC ON PRACTICAL EXPERIENCE AND THE TURKISH EXPERIENCE RECEP PEKDEMIR, Ph.D Professor of Accounting School of Business, Istanbul University Technical Advisor, Education Committee International Federation of Accountants IFAC Tel.: Fax: Key Words: Accountancy, Accounting Profession, Practical Experience, Accounting Education, Pre- Qualification Abstract Global accounting and reporting standards have been becoming important for the decades since the seventies. Besides this development, accounting profession has been emerged gradually throughout the world. As a result of these trends, international accounting organisations such as the International Federation of Accountants (the IFAC) and the International Accounting Standards Committee (the IASC) were founded in the seventies in order to regulate internationally both professional and reporting standards. In this paper, it is aimed to explain the IFAC, to brief its standing committees and their technical pronouncements, to explore the Discussion Paper on Practical Experience, and to make a comparison between the situation about the practical experience existing in Turkey and the minimum requirements mentioned by that paper. In order to achieve this objective, the literature in this area and the documents published by the IFAC and the Turkish Authorities have been carefully examined, and also my observation on the roughly ten-yearexperience of Turkey was the other substantial source for this paper. Introduction The world has been becoming smaller day by day because of the worldwide globalisation. Consequently both harmonised accounting standards and accounting profession throughout the world will become more important. Therefore the developing countries should follow up the progresses in this field. Turkey enacted Accounting Profession Law[i] (No 3568) in June Prior to this development, there existed non-governmental organisations such as the Expert Accountants Association of Turkey and the Union of the Independent Accountants Associations in Turkey. Since the inception of the legal accounting profession in 1989, certain progresses, which existed in the developed countries, have been accomplished in Turkey.[ii] 183

2 The accounting profession in Turkey was established at three levels (types): The first one is the lower level which is called the independent accountant (the SM Serbest Muhasebeci). They could not undertake consultancy or financial audit assignments. It can be argued that it (the SM) is similar to the accounting technician existing in New Zealand and Britain. The second one is the middle level which is called the certified public accountant (the SMMM - Serbest Muhasebeci Mali Musavir). They mainly have the authority to audit financial statements and to approve tax statements. The third one is the top level which is called the sworn-in certified public accountant (The YMM Yeminli Mali Musavir). Having the same authority as the state auditors have in order to audit the tax rebate statements etc., they are the seniority of the accounting profession. The Objective and Scope This paper aims to explain the International Federation of Accountants (the IFAC), to brief the Discussion Paper on Practical Experience issued by the Education Committee of the IFAC in September 1998, and to submit the developments in this perspective to the attention of both the Turkish and international public interest. In order to achieve this objective in this paper, the topics that will be focused on are below:! The background of the IFAC,! The objectives of the IFAC,! About the Committees of the IFAC and the Education Committee,! Education guidelines, exposure drafts, and discussion papers,! The Discussion Paper of the IFAC on Practical Experience,! A comparison between the Discussion Paper and the same situation existing in Turkey. About the IFAC The IFAC is an international organisation of national professional accountancy organisations that represents accountants employed in public practice, business or industry, the public sector, and education, as well as some specialised groups that interface frequently with the profession.[iii] The IFAC is a non-profit, non-governmental, non-political organisation of accountancy bodies, which can be unions, associations, institutions, institutes, etc. The IFAC s broad objective is to develop and enhance a coordinated worldwide accountancy profession with harmonised standards in order to enable accountants to provide services of consistently high quality in the public interest. The IFAC came into being as a result of initiatives put forward in 1973 and formally approved[iv] at the International Congress of Accountants in Munich in Through co-operation with member bodies and regional organisations of accountancy bodies, the IFAC initiates, coordinates, and guides efforts to achieve international technical, ethical, and educational guidelines for the accountancy profession. 184

3 As of April 1999, there are 185 Member States of the United Nations (UN).[v] The IFAC has 142 member bodies in 103 countries, representing more than 2 million accountants.[vi] As a result of this, 82 countries of the UN do not still have any member bodies as professional accounting or accountancy organisations accepted by the IFAC.[vii] But, it is possible to argue that the IFAC has a large majority in the world because of the structures and origins of the member bodies. There are two member bodies of the IFAC in Turkey: The first one is the Expert Accountants Association of Turkey, which became a member of the IFAC in It has been a voluntary organisation since its establishment in 1942; therefore it has not had any legal authority on the Turkish Accounting Profession. But, it has been a substantial factor affecting the evolution and development of the national accounting profession.[viii] The second one is the Union of the Chambers of Certified Public Accountants of Turkey. It was established as a result of the Law enacted in Therefore it has had the legal authority on the profession. The Union became a member of the IFAC in The IFAC has an Assembly, which consists of one representative from each member accountancy body. This assembly elects the members of the Council, which has the responsibility for implementing the work program of the IFAC. This is done primarily through standing technical committees, and also from time to time small working groups, ad hoc committees or task forces are appointed to work on special projects. Nowadays, there are six committees of the Council of the IFAC:! Ethics Committee,! Education Committee,! Financial and Management Accounting Committee,! Information Technology Committee,! Public Sector Committee,! Membership Committee. Turkey has chairs both at the Education Committee[ix] and the Membership Committee[x] for the period of As mentioned above, from time to time the IFAC s Council appoints special task forces to address significant issues that warrant focused attention. Currently, there are five task forces:! Anti-Corruption Task Force! Legal Liability Task Force! Quality Assurance Task Force! Small and Medium Enterprise Task Force! Structure and Organization Task Force 185

4 The IFAC s leadership, its committees and task forces work with member bodies in order to achieve its main objectives by performing these primary activities:[xi]! Serving as international advocates. IFAC develops and promotes high quality technical, professional and ethical standards and guidance for use by accountants employed in every sector.! Acting as agents for change. IFAC provides leadership on emerging issues, the impetus for the liberalisation of accountancy services and a universal voice for the world s accountants on issues of public and professional concern. Much of this is accomplished through outreach to numerous organisations that rely on or have an interest in the activities of the international accountancy profession.! Facilitating the development of a harmonised worldwide accountancy profession. IFAC fosters the advancement of strong national professional accountancy organisations. It works closely with regional accountancy organisations and development agencies to accomplish this. About the Education Committee The Education Committee is one of the major operating committees of the IFAC. Most of the operating committees have the authority for the issue of pronouncements following an exposure period. The Education Committee has such authority, and has the right to issue guidelines without having to obtain the specific approval of the Council before publication. The Education Committee has two specific terms of reference: [xii]! To develop guidelines, discussion papers and the other information documents on both pre-qualification education and training of accountants and on continuing professional education for members of the accounting profession.! To act as a catalyst in bringing together the developed and developing nations and to assist in the advancement of accounting education programs worldwide, particularly where this will assist economic development. The Education Committee has been effective in accomplishing the first one. At every meeting, the Education Committee considers very carefully the developments, which are taking place in accounting education, and discusses the perceived need to produce guidelines and/or discussion papers on new or developing matters. The International Education Guidelines, The Discussion Papers, and The Studies The International Education Standards establish essential methods and techniques, which have the potential for the international recognition, acceptance, and application. The educational guidelines promote good practice and/or provide advice. They are based on careful study of existing best practices and most effective methods for dealing with issues being raised. They are not to override requirements of individual member bodies. They set out basic essential elements which education and training programs may be expected to contain. There has not been any international education standard issued by the Education Committee so far; but over the years, a number of guidelines and discussion papers have been published. 186

5 The International Education Guidelines Published by the Education Committee:! IEG2 Continuing Professional Education! IEG7 Education and Training Requirements for Accounting Technicians! IEG9 Pre-qualification Education, Tests of Professional Competence and Practical Experience of Professional Accountants! IEG10 Professional Ethics for Accountants: The Educational Challenge and Practical Application! IEG11 Information Technology in the Accounting Curriculum The Discussion Papers and The Studies Published by the Education Committee:! Specialisation in the Accounting Profession (1992)! Minimum Skill Levels in Information Technology for Professional Accountants (incorporated in IEG 11)! 2000 and Beyond - A Strategic Framework for Pre-qualification Education for the Accountancy Profession in the Year 2000 and Beyond (1994)! Integrating Information Technology in the Accounting Curriculum - The Experience of the Certified General Accountants Association of Canada (1995)! Implementing IEG 11 - Strategies of the American Institute of CPAs (1996)! Study 1 - An Advisory on Examination Administration Based on the Practices of Selected IFAC Member Bodies (1998)! Competence-Based Approaches to the Professional Preparation of Accountants (1998)! Practical Experience (1998)! The Internet and Distance Learning in Accounting Education: A Hypertext-linked Exploration of the Topic (1998) The Discussion Paper on Practical Experience There is an important statement in Paragraph 49 of the International Education Guideline No 9, Pre-qualification Education, Tests of Professional Competence and Practical Experience of Professional Accountants. An appropriate period of relevant experience in performing the work of professional accountants must be a component of a pre-qualification program. The period of experience may vary due to differences in the environment in which professional accountants offer their services. However, this period should be long enough to permit prospective accountants to demonstrate they have gained the knowledge, skills and professional values sufficient for performing with professional competence and for continuing to grow throughout their careers. This objective cannot normally be met in a period of less than three years. 187

6 The Education Committee issued the Discussion Paper on Practical Experience in order to provide commentary and guidance for member bodies in relation to the question of practical experience for their future members. The statement of reasons for the Discussion Paper was stated as follow:[xiii] The accounting profession worldwide faces unprecedented environmental forces that emphasise the need for appropriate professionally relevant experience for members. These forces include the globalisation of business, rapid development and implementation of new information technology, and expansion of services provided by accountants. In view of these forces, it is important that future members of the profession obtain both professionally relevant educational background and professionally relevant practical experience to allow them to work effectively in this global economy and marketplace. The experience requirements of member bodies should be designed to assist future members in the development of the professional knowledge, skills, and values needed to deal effectively with these forces. This discussion paper suggests what the Federation would regard as good practice. It recognises the diversity of approach among member bodies to the question of practical experience for future members. Member bodies operate within diverse legal and regulatory structures and have different traditions and practices. Some see a period of planned relevant experience as essential to the development of competence, while others do not or are not in a position to operate such a requirement. In some cases, defined practical experience is a requirement for reasons of regulation or for participation in specialist work, while, in others, a period of relevant practical experience has always been seen as a necessary prerequisite to membership. Certain suggestions were given to the member bodies through the Discussion Paper. Suggestions related to the experience, mentors, and the monitoring system are as follows:[xiv] Experience leading to qualification should be conducted under the direction and supervision of experienced members of the professional body as identified by the body or regulatory agency. Persons accepting responsibility to serve as mentors of future members should be fully informed as to the obligations and responsibilities involved. They should be persons committed to the profession and to the advancement of students in their care. Mentors will be experienced members of the professional body and with some seniority in their employer organisations. Mentors may be drawn from the employer organisation or beyond its ranks. They should have an understanding and appreciation of the educational objectives and policies of the member body. This may not always be the case and persons accepting this role will need to be fully briefed relating to the responsibilities involved. Given the variety of circumstances that exist among professional accountancy bodies, the requirements for relevant experience may vary from one to another. However, the 188

7 professional body or regulatory agency should ensure that the experience gained is acceptable. Among the steps it might take are the following:! Establish a monitoring system that provides for the monitoring and reporting of the experience actually obtained by the student! Provide detailed written guidance in the form of manuals for employers and students! Establish a mechanism for approving employers as suitable for providing the appropriate experience for the students (This may be in the form of a committee that reviews the reputation and nature of practice of any applicant employer to ensure that the employment situation is satisfactory.)! Assess and approve the work experience environment before the commencement of employment (To this end, the nature and scope of relevant experience and the organisational structure of the employer should be considered to ensure that the student receives proper direction, supervision, counselling and evaluation.)! Assess the experience gained on the basis of a written and/or oral submission made by the student, appropriately supported by employers, et cetera, at the point of application for membership! Review employers previously approved. The review may advise an employer on areas that need improvement or may recommend that approval be withdrawn if conditions have changed to the extent that relevant experience criteria are not being met! Establish a system of periodic reporting to cover changes, if any, in the nature, scope, and content of the practical experience provided to the prospective professional accountant in cases where it may be impractical to visit all approved employers The Comparison In this part of the paper, in order to achieve the purpose given, only the SMMMs of Turkey will be included in the comparison since it is similar to the certified public accountancy existing in the developed countries. The differences resulting from the comparison have been highlighted as follows: [xv] Exemptions and Waivers; to become a member as the SMMM of the profession, there have been extensive exemptions and waivers for the professional and vocational requirements. Almost all of the practicing SMMMs were selected by a Selection Committee which was established by the Professional Law, No 3568, and operated for roughly two years under the management of the Ministry of Finance in the earlier years of the legal recognition of the profession. These generous exemptions and waivers have been considered to be the most serious issues of the profession since its commencement.[xvi] One can say that it would probably take many years. Educational Background; in Turkey, to become a future member of the prospective certified public accountant (the prospective SMMM), who is the person preparing to be a member of the professional body which is the chamber of the SMMM s and consequently the union of those, it has been required to graduate from the universities having at least four year academic programs. Besides majoring in accountancy and business administration, other certain majoring fields such as law, political sciences, economics, public management, international relations, human resources management etc., have been accepted in order to become a future 189

8 member. In fact, most graduates have not taken any accounting or business courses. Consequently there exist very cosmopolite groups on the way for professional accountancy in Turkey. Practical Experience Requirement; two year experience in performing the work of the SMMM s which must be a substantial component of a pre-qualification program is required in Turkey. The period of relevant experience should in general be long enough to permit the future members to demonstrate they have gained the knowledge, skills, and professional values sufficient for performing with professional competence and for continuing to grow throughout their careers. For this objective, the period required is at least three years within the IFAC Discussion Paper. The period of three years at least must have been considered for the future members taking satisfactorily enough accounting and business courses at undergraduate and graduate levels. Therefore there exist a generous problem on the appropriate period of relevant experience needed especially for non-business young people. Relevant Experience; in general, it refers to participation in work activities in an environment appropriate to the application of professional knowledge, skills, and values. It should provide a professional environment whose features are explored in the Discussion Paper of the IFAC as follows:! The accountant enhances his/her understanding of the organisation and functioning of business.! The accountant is able to relate accounting work to other business functions and activities.! The accountant becomes aware of the environment in which services will be provided.! The accountant develops the appropriate professional ethics and values in practical, reallife situations.! The accountant has an opportunity to work at progressive levels of responsibility.! The accountant obtains the specialised accountancy training needed to ensure professional competence. According to my observations and experience gained for ten years, it is rarely possible to find this kind of professional environment in Turkey in order to have practical experience legally required. All kinds of environment regarding the requirements mentioned above have not been accepted in order for the future members to have two year practical experience needed in Turkey. Mentors; they represent an important link between the future member and the member body. As mentioned in the Discussion Paper of the IFAC, in order to discharge these substantial functions, mentors should be well-experienced members of the profession with some seniority. They may be drawn from the employer organisation or beyond its ranks. They should have understanding and appreciation of the educational objectives and policies of the professional member body. Disregarding these features, in Turkey, all of the SMMM s and the YMM s operating in practice can be mentors of the future members. So, there is not any system or mechanism to select or certify them to be mentors. Monitoring System; I would argue that there has not been any efficient and effective monitoring system established which provides for the monitoring and reporting of the experience actually obtained by the future members. Only two systems or mechanisms have 190

9 been operated to make assessment of the two-year experience gained by the future members. The first one is the assessment letter or report prepared by the monitor, the second one is the qualification exam that the future members have to take at the end of the two year period. The effectiveness and efficiency of those applications can be discussed. In order to judge and have a decision on those, an extensive research or survey must be considered. Summary and Conclusions In summary, it is possible to say that there are lots of things to do in order to investigate the issues and problems related to the accounting profession in Turkey. In this paper, the background and evolution of the IFAC, its standing committees, its technical pronouncement published, and the Discussion Paper on Practical Experience have been explored for the Turkish public interest and the Members of the ISMMMO. And also, in the aspects of the practical experience related to accounting profession, a comparison between the advice given in the Discussion Paper of the IFAC and the situations existing in Turkey has been made, and certain differences resulting from the comparison have been explained. References: [i] Published on the Official Gazette, June 13, [ii] For further information, kindly see: Masum Turker, Co-Operation Between Public and Private Sectors in Developing Countries: Privatization and Accounting Profession, XV.World Congress of Accountants, October 27-29, 1997, Paris-France. [iii] [iv] On behalf of Turkey, Mustafa A.Aysan, President of the Expert Accountants Association of Turkey, signed the IFAC s Constitution in Munich, in [v] Visit to [vi] Visit to [vii] Full membership in IFAC automatically includes membership in the International Accounting Standards Committee (the IASC). The IASC is a sister organisation of IFAC. [viii] Mustafa A. Aysan, The Evolution of Turkish Accountancy, XV.Accounting Congress of Turkey, September 5-7, [ix] Masum Turker is member, Recep Pekdemir and Ercan Bayazitlı, technical advisors. [x] Mustafa Özyürek is member, Ahmet Fettahoglu and Elif Pürsünleri, technical advisors. [xi] [xii] Cecil W. Donavan, The Role of the International Federation of Accountants in Education, Irish Accounting Review, (1997, Vol. 4, No 2), p. 26. [xiii] The Discussion Paper, p [xiv] Op.cit, p [xv] For further information kindly see: Recep Pekdemir, Forging Professionalizm, Education Network, April [xvi] Mustafa A. Aysan, Accountancy; A Business or A Profession? The Turkish Case, The 6 th Jerusalem Conference on Accountancy, Nov , 1996, p