Friday, 26 August 2011

World Trade Organization




Trade in Services

DISCIPLINES ON DOMESTIC REGULATION

IN THE ACCOUNTANCY SECTOR

Adopted by the Council for Trade in Services on 14 December 1998

I. OBJECTIVES

1. Having regard to the Ministerial Decision on Professional Services, Members have agreed to the following disciplines elaborating upon the provisions of the GATS relating to domestic regulation of the sector. The purpose of these disciplines is to facilitate trade in accountancy services by ensuring that domestic regulations affecting trade in accountancy services meet the requirements of Article VI:4 of the GATS. The disciplines therefore do not address measures subject to scheduling under Articles XVI and XVII of the GATS, which restrict access to the domestic market or limit the application of national treatment to foreign suppliers. Such measures are addressed in the GATS through the negotiation and scheduling of specific commitments.

II. GENERAL PROVISIONS

2. Members shall ensure that measures not subject to scheduling under Articles XVI or XVII of the GATS,[1] relating to licensing requirements and procedures, technical standards and qualification requirements and procedures are not prepared, adopted or applied with a view to or with the effect of creating unnecessary barriers to trade in accountancy services. For this purpose, Members shall ensure that such measures are not more trade-restrictive than necessary to fulfil a legitimate objective. Legitimate objectives are, inter alia, the protection of consumers (which includes all users of accounting services and the public generally), the quality of the service, professional competence, and the integrity of the profession.

III. TRANSPARENCY

3. Members shall make publicly available, including through the enquiry and contact points established under Articles III and IV of the GATS, the names and addresses of competent authorities (i.e. governmental or non-governmental entities responsible for the licensing of professionals or firms, or accounting regulations).

4. Members shall make publicly available, or shall ensure that their competent authorities make publicly available, including through the enquiry and contact points:

(a) where applicable, information describing the activities and professional titles which are regulated or which must comply with specific technical standards;

(b) requirements and procedures to obtain, renew or retain any licences or professional qualifications and the competent authorities' monitoring arrangements for ensuring compliance;

(d) upon request, confirmation that a particular professional or firm is licensed to practise within their jurisdiction.

5. Members shall inform another Member, upon request, of the rationale behind domestic regulatory measures in the accountancy sector, in relation to legitimate objectives as referred to in paragraph 2.

6. When introducing measures which significantly affect trade in accountancy services, Members shall endeavour to provide opportunity for comment, and give consideration to such comments, before adoption.

7. Details of procedures for the review of administrative decisions, as provided for by Article VI:2 of the GATS, shall be made public, including the prescribed time-limits, if any, for requesting such a review.

IV. LICENSING REQUIREMENTS

8. Licensing requirements (i.e. the substantive requirements, other than qualification requirements, to be satisfied in order to obtain or renew an authorization to practice) shall be pre-established, publicly available and objective.

9. Where residency requirements not subject to scheduling under Article XVII of the GATS exist, Members shall consider whether less trade restrictive means could be employed to achieve the purposes for which these requirements were set, taking into account costs and local conditions.

10. Where membership of a professional organisation is required, in order to fulfil a legitimate objective in accordance with paragraph 2, Members shall ensure that the terms for membership are reasonable, and do not include conditions or pre-conditions unrelated to the fulfilment of such an objective. Where membership of a professional organization is required as a prior condition for application for a licence (i.e. an authorization to practice), the period of membership imposed before the application may be submitted shall be kept to a minimum.

11. Members shall ensure that the use of firm names is not restricted, save in fulfilment of a legitimate objective.

12. Members shall ensure that requirements regarding professional indemnity insurance for foreign applicants take into account any existing insurance coverage, in so far as it covers activities in its territory or the relevant jurisdiction in its territory and is consistent with the legislation of the host Member.

13. Fees charged by the competent authorities shall reflect the administrative costs involved, and shall not represent an impediment in themselves to practising the relevant activity. This shall not preclude the recovery of any additional costs of verification of information, processing and examinations. A concessional fee for applicants from developing countries may be considered.

V. LICENSING PROCEDURES

14. Licensing procedures (i.e. the procedures to be followed for the submission and processing of an application for an authorization to practise) shall be pre-established, publicly available and objective, and shall not in themselves constitute a restriction on the supply of the service.

15. Application procedures and the related documentation shall be not more burdensome than necessary to ensure that applicants fulfil qualification and licensing requirements. For example, competent authorities shall not require more documents than are strictly necessary for the purpose of licensing, and shall not impose unreasonable requirements regarding the format of documentation. Where minor errors are made in the completion of applications, applicants shall be given the opportunity to correct them. The establishment of the authenticity of documents shall be sought through the least burdensome procedure and, wherever possible, authenticated copies should be accepted in place of original documents.

16. Members shall ensure that the receipt of an application is acknowledged promptly by the competent authority, and that applicants are informed without undue delay in cases where the application is incomplete. The competent authority shall inform the applicant of the decision concerning the completed application within a reasonable time after receipt, in principle within six months, separate from any periods in respect of qualification procedures referred to below.

17. On request, an unsuccessful applicant shall be informed of the reasons for rejection of the application. An applicant shall be permitted, within reasonable limits, to resubmit applications for licensing.

18. A licence, once granted, shall enter into effect immediately, in accordance with the terms and conditions specified therein.

VI. QUALIFICATION REQUIREMENTS

19. A Member shall ensure that its competent authorities take account of qualifications acquired in the territory of another Member, on the basis of equivalency of education, experience and/or examination requirements.

20. The scope of examinations and of any other qualification requirements shall be limited to subjects relevant to the activities for which authorization is sought. Qualification requirements may include education, examinations, practical training, experience and language skills.

21. Members note the role which mutual recognition agreements can play in facilitating the process of verification of qualifications and/or in establishing equivalency of education.

VII. QUALIFICATION PROCEDURES

22. Verification of an applicant's qualifications acquired in the territory of another Member shall take place within a reasonable time-frame, in principle within six months and, where applicants' qualifications fall short of requirements, shall result in a decision which identifies additional qualifications, if any, to be acquired by the applicant.

23. Examinations shall be scheduled at reasonably frequent intervals, in principle at least once a year, and shall be open for all eligible applicants, including foreign and foreign-qualified applicants. Applicants shall be allowed a reasonable period for the submission of applications. Fees charged by the competent authorities shall reflect the administrative costs involved, and shall not represent an impediment in themselves to practising the relevant activity. This shall not preclude the recovery of any additional costs of verification of information, processing and examinations. A concessional fee for applicants from developing countries may be considered.

24. Residency requirements not subject to scheduling under Article XVII of the GATS shall not be required for sitting examinations.

VIII. TECHNICAL STANDARDS

25. Members shall ensure that measures relating to technical standards are prepared, adopted and applied only to fulfil legitimate objectives.

26. In determining whether a measure is in conformity with the obligations under paragraph 2, account shall be taken of internationally recognized standards of relevant international organizations[2] applied by that Member.

APPENDIX

For the purpose of clarity, the text of GATS Articles XVI and XVII is reproduced below.

Article XVI

Market Access

1. With respect to market access through the modes of supply identified in Article I, each Member shall accord services and service suppliers of any other Member treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule.[3]

2. In sectors where market-access commitments are undertaken, the measures which a Member shall not maintain or adopt either on the basis of a regional subdivision or on the basis of its entire territory, unless otherwise specified in its Schedule, are defined as:

(a) limitations on the number of service suppliers whether in the form of numerical quotas, monopolies, exclusive service suppliers or the requirements of an economic needs test;

(b) limitations on the total value of service transactions or assets in the form of numerical quotas or the requirement of an economic needs test;

(c) limitations on the total number of service operations or on the total quantity of service output expressed in terms of designated numerical units in the form of quotas or the requirement of an economic needs test;[4]

(d) limitations on the total number of natural persons that may be employed in a particular service sector or that a service supplier may employ and who are necessary for, and directly related to, the supply of a specific service in the form of numerical quotas or the requirement of an economic needs test;

(e) measures which restrict or require specific types of legal entity or joint venture through which a service supplier may supply a service; and

(f) limitations on the participation of foreign capital in terms of maximum percentage limit on foreign share-holding or the total value of individual or aggregate foreign investment.

Article XVII

National Treatment

1. In the sectors inscribed in its Schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favourable than that it accords to its own like services and service suppliers.[5]

2. A Member may meet the requirement of paragraph 1 by according to services and service suppliers of any other Member, either formally identical treatment or formally different treatment to that it accords to its own like services and service suppliers.

3. Formally identical or formally different treatment shall be considered to be less favourable if it modifies the conditions of competition in favour of services or service suppliers of the Member compared to like services or service suppliers of any other Member.

__________

[1] The text of GATS Articles XVI and XVII is reproduced in an appendix to this document

[2] The term "relevant international organizations" refers to international bodies whose membership is open to the relevant bodies of at least all Members of the WTO.

[3] If a Member undertakes a market-access commitment in relation to the supply of a service through the mode of supply referred to in subparagraph 2(a) of Article I and if the cross-border movement of capital is an essential part of the service itself, that Member is thereby committed to allow such movement of capital. If a Member undertakes a market-access commitment in relation to the supply of a service through the mode of supply referred to in subparagraph 2(c) of Article I, it is thereby committed to allow related transfers of capital into its territory.

[4] Subparagraph 2(c) does not cover measures of a Member which limit inputs for the supply of services.

[5] Specific commitments assumed under this Article shall not be construed to require any Member to compensate for any inherent competitive disadvantages which result from the foreign character of the relevant services or service supplies.

CHALLENGES TO ACCOUNTING PROFESSION IN WTO REGIME

Abstract

The paper presents scenario as backdrop to the rise of WTO. It states various unique features of SAARC region and focuses on challenges restricted to accounting professions in the wake of rise of WTO. It presents briefly the regulatory framework governing the issuance of International Accounting Standards and International Standards on Auditing. It poses challenge to produce SAARC Accountants in the short run and Global Accountant in the long run for accepting the challenges posed by WTO regime in services sector.

It urges the Accounting Professional Institutes to implement IES-1 to 6 and IES-7 to produce professionally qualified accountants to face the challenges posed by WTO. It suggests the completion of journey through three stages namely, Memorandum of Discussion, Memorandum of Understanding and finally through Mutually Recognized Agreements.

While identifying appropriate logistics needed to meet WTO challenges, it presents a framework for strategic preparation through restructuring courses of studies and understanding competitive forces. In this respect details have been included for operationalizing the course of action and developing a commitment to implement the spirit of competitive forces.

CHALLENGES TO ACCOUNTING PROFESSION IN WTO REGIME

The Rise of WTO

In the last quarter of 20th century, the world saw some spectacular changes. Cross border investments started freely. Cross border transactions in the area of Stock Market, Trade and Movement of persons took place. The world saw the rise of competitive forces. China emerged as a rising giant. The Indians earned a high respect in the comity of nations due to their openness in the economy of the Country. India has appeared on the map of 85 countries through Business Process Outsourcing (BPO). European Union, through integration, emerged as strong force alongwith the introduction of new currency “Euro”. South Asian economies are a sleeping giant and have awakened up. Our area constituting SAARC Countries is a unique in many respects. We have the oldest civilization of the world. We are the largest single economic block with the highest number of consumers. We are number one in the world from the viewpoint of irrigation system. We rank number Two in the railway network, after USA.

For meeting the challenges of WTO, there is a need for South Asia to rise to the occasion and meet socio-economic challenges. However, this paper is restricted to challenges to accounting profession in the wake of rise of WTO.

The Accounting Profession

The global accounting profession is a beneficiary through issuance of various Accounting Standards from International Accounting Standard Board located in London, which issues International Accounting Standards (IAS) / International Financial Reporting Standards (IFRS). So far 40 IAS/IFRS have been issued. However the other aspects relating to education, ethics, business matter, public sector and auditing are handled by various Committees through the International Federation of Accountants (IFAC). In particular, International Standards on Auditing and related services are prepared by International Auditing & Assurance Standards Board (IAASB) and released through IFAC.

The accountancy profession produces two types of accountants namely: Chartered Accountants and Cost & Management Accountants. The challenges facing the accountancy profession in South Asia are to produce, in the short run, SAARC Accountants and later in the long run, a globally acceptable accountant on a wider scale.

Seven European countries are currently devoting their efforts in producing an European Accountant who may be acceptable throughout Europe. UNDP has prepared a curriculum to prepare a global accountant. Their curricula is also being debated and discussed to ensure that it meets International Education Standards (IES) 1 – 6. Table 1 lists these standards.

IES 7 released in May 2004 is entitled “Continuing Professional Development: A Program of Lifelong Learning and Continuing Development of Professional Competence”. In the backdrop of above, autonomous professional Institutes, the product of various legislations / statutes of respective countries are governed the accounting profession. They produce qualified accountants who service the business, industry, government, multi-nationals, etc. but also, with approval from their respective Institutes, practice for audit purposes. To meet the WTO challenge, this paper will focus its attention in developing SAARC Accountant in the short run and global accountant in the long run to play their role in the world.

The Journey

The journey would begin with the following three stages:

¯ MOD – Memorandum of Discussion

¯ MOU – Memorandum of Understanding

¯ MRA – Mutually Recognized Agreements

Under the auspices of South Asian Federation of Accountants (SAFA) consisting of India, Pakistan, Bangladesh, Sri Lanka and Nepal, the above process has started* and is briefly reviewed as under:

1) MOD

All the professional Institutes in SAARC region have completed this process.

2) MOU

Most of the professional Institutes in SAARC region have signed MOUs with each other for creating awareness relating to mutual recognition of qualification. However an effective follow up is the agenda of tomorrow.

3) MRA

Arising out of series of meetings, a suggested framework for Curriculum Governing Chartered Accountancy is now ready for discussion, comprehension and adoption in SAARC region. A similar effort relating to Cost and Management Accounting Curriculum is underway. It is hoped that as time goes on, this may possibly mature and eventually a bold step will be on its way to meet the spirit of WTO in services sector for free mobility and acceptability in South Asia in short run and globally in the long run.

Logistics

By now, Education Committee of the International Federation of Accountants has so far approved six International Education Standards for professional accountants to meet the challenges of WTO (See Table 1). The Accounting Professional Institutes on global basis are reviewing their curricula to adhere to all the above IESs. Entry requirements to produce the professional accountants are being reviewed globally. The contents of professional accounting programs are being updated. Full attention in being given to developing professional skills, professional values, ethics and attitudes. A fresh look is being given to refining the practical experience requirements. Finally a new system for assessment of professional capabilities and competence is being developed.

IFAC Education Committee is impressing upon the professional institutes (163) in 122 countries to meet the foregoing challenges. Logistics are being geared up and the direction for important areas is now crystal clear. The implementation of foregoing International Education Standards will certainly enable professional institutes on global and SAARC countries basis to meet the challenges of WTO. It may be interesting to note that a review carried out by Scotish Institute of Chartered Accountants relating to model curriculum for professional accountants by UNDP has also identified several gaps*.

WTO Challenges

WTO was established on January 01, 1995 in Geneva, Switzerland. Currently the membership is 149 Countries as on February 05, 2006. Main strategic challenges of WTO include the following:

1) Administering WTO trade agreements.

2) Forum for trade negotiations.

3) Handling trade disputes.

4) Monitoring national trade policies.

5) Technical assistance and training for developing countries.

6) Cooperation with other international organizations.

Our Strategic Preparation

Our strategic preparation to face the challenges of WTO may include the following:

1) Restructuring

To ensure that proper persons join Accounting Profession, IEG 11 suggests broad guidelines for entry point and structure of pre-qualification education and experience of professional accountants. This IEG is also under review and to be issued as IES-11. This process will take around two years. IEG 11 identifies the scope of the guideline by explaining work domain, roles, pre-qualification and post-qualification, knowledge and skills, pre-qualification tests of professional competence and post-qualification tests of professional competence. Pre-qualification IT knowledge and skill requirements have also been spelled out by highlighting general information technology education requirements, the user role, the manager role, the designer role and the evaluator role. It also includes guidelines for post qualification IT knowledge and skill requirement through continuing professional education**, guidelines for specialization and details of four roles to be performed by professional accountants as user, manager, designer and evaluator. Six appendices (Table 2) relating to core I.T. knowledge and skill areas for professional accountants roles have been attached to above IEG.

The accounting professional Institutes are urged to restructure their syllabi and ensure IES 7 for continuing professional development so that professional accountants are not a victim of Law of Obsolescence of Knowledge.

This guideline lists three elements of accounting education and experience e.g. knowledge, skills and professional values. The strategic goal is to produce competent professional accountants. Knowledge bejeweling must cover General Knowledge, Organizational and Business, Information Technology and Accounting and Accounting relate. Skills to be developed include intellectual, interpersonal and communication. Professional values must concentrate on professional ethics and values.

Earlier, entry requirements require pre-testing to enable students with appropriate aptitude to enter into the accounting profession.

Core knowledge in organizational and business areas such as economics, quantitative methods and statistics of business, organization behavior, operations management, marketing and international business must be covered in the prescribed courses of studies. Core knowledge related to accounting and related areas must include in the prescribed courses of studies subjects such as financial accounting and reporting, management accounting, taxation, business and commercial law, auditing, finance and financial management and professional ethics.

Field experience is a pre-requisite for developing proper accounting professionals.

IEG 11 deals with Information Technology (IT). IT is pervasive in the world of business and a firm grip on IT on the following aspects is considered essential for professional accountants:

a) General IT education requirements.

b) The accountant as user of IT.

c) The accountant as manager of Information Systems.

d) The accountant as designer of Business Systems.

e) The accountant as evaluator of Information Systems.

Six appendices have been included with the above IEG dealing with general information technology education requirements, with the following components:

a) IT concepts for business systems.

b) Internal control in computer-based systems.

c) The professional accountant as a user of IT, as a manager of IS, as a manager of IS and as a designer.

2) Understanding Competitive Forces

Five point model suggested by Prof. Dr. Michael E. Porter is recommended to be carefully examined for developing strategies to face the future challenges of WTO regime. His model is summarized below:

a) The threat of new competitors entering the industry

b) The intensity of rivalry among existing competitors

c) The threat of substitute products or services

d) The bargaining power of buyers

e) The bargaining power of sellers

Conclusion

It is high time that professional accounting institutions equip themselves to prepare SAARC Accountants in short run and global accountants in long run to be universally acceptable to meet the challenges of WTO. Homework is needed to be undertaken with a serious attitude to achieve the foregoing objectives. The earlier this is done, the better,

Selected Bibliography

A) Books

1) Wright, Peter, Kroll, Mark J., Parnell, John (1998), Strategic Management: Concepts and Cases, New Jersey: Prentice Hall.

2) Porter, Michael E., (1989) The Competitive Advantage of Nations, New York: The Free Press.

3) Saeed, Khawaja Amjad, (2006), Principles of Auditing, Lahore, Institute of Business Management.

4) Saeed, Khawaja Amjad, (2006), Advanced Auditing, Lahore, Institute of Business Management.

5) International Standards on Auditing & International Auditing Practice Statementa, Institute of Chartered Accountants of Pakistan, Karachi, November 2002.

6) International Standards on Auditing & International Auditing Practice Statements, Institute of Chartered Accountants of Pakistan, Karachi, 2002.

B) Publication of International Accredited Bodies

7) IFAC 1999 Technical Pronouncements, New York: International Federation of Accountants, Sections: Education (pp 591-694) and Information Technology (pp 927-968).

8) IFAC Handbook 2000: Technical Announcements, New York: International Federation of Accountants, IEG, 2000.

9) International Education Standards for Professional Accountants, International Federation of Accountants, Education Committee, New York, October, 2003.

10) IFAC Education Committee IAS – 7, New York, International Federation of Accountants, Education Committee, May 2004.

C) Articles

11) Eshai Mujahid, ICAP and the Provisions of the WTO GATS, “The Pakistan Accountant”, March – April 2000, pp 5-20.

12) Haider, Sayed Aftab, World Trade Organization: The Rhetpric and Reality, “The Pakistan Accountant, March-April 2000, pp 21-23.

13) Noordin, Shiraz, World Trade Organization: Trade Flow as Freely as Possible, “The Pakistan Accountant”, March-April 2000, pp 325-29.

* The author served as SAFA Vice President (1996), President (1997) and Advisor (1998) and also participated in several SAFA Assembly meetings during 1999 to 2005 in which the above processes were fully discussed.

* The author attended the IFAC Education Committee meeting as Technical Advisor in Düsseldorf, Germany in 2005 in which a presentation was given on these gaps and detailed discussions were held.

** This is now known as IES-7 (May 2004) and deals with Continuing Professional Development: A Program of Lifelong Learning and Continuing Development of Professional Competence.

Accounting Articles