VALUE CREATION

BY

PROFESSIONAL ACCOUNTANTS
SAFA CONFERENCE 4TH & 5TH APRIL 2008 at AVARI HOTEL, LAHORE

Presentation by

Syed Shabbar Zaidi President South Asian Federation of Accountants

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TABLE OF CONTENTS
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2.
3. 4.

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6. 7. 8.

The History The Future The Principles The Humorous Side The Present World and the World of Poor The Government and the Society Public Confidence in Financial Reporting Value Creation by Professional Accountants

THE HISTORY

Lord Macaulays revealing remarks in his address to the British Parliament on February 2, 1835:
I have traveled across the length and breadth of India* and I have not seen one person who is a beggar, who is a thief. Such wealth I have seen in this country, such high moral values, people of such caliber, that I do not think that we would ever conquer this country, unless we break the very backbone of this nation, which is her cultural and spiritual heritage, and, therefore, I propose that we replace her old and ancient education system, her culture, for if the Indians think that all that is foreign and English is good and greater than their own, they will lose their self esteem, their native culture and they will become what we want them a truly dominated nation. * sub-continent
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THE FUTURE (1)

THE FUTURE WORLD

The world of the future will demand capacities that, until now, have been mere options.

We live in a time of vast changes that include accelerating globalization, mounting quantities of information, the growing hegemony of science and technology, and misperceived concept of the clash of civilization. Those changes call for new ways of learning and thinking in school, business, and the professions.

THE FUTURE (2)

The Disciplinary Mind: mastery of major schools of thought (including science, mathematics, and history) and of at least one professional craft. The Synthesizing Mind: ability to integrate ideas from different disciplines or sphere into a coherent whole and to communicate that integration to others. The Creating Mind: capacity to uncover and clarify new problems, questions, and phenomena. The Respectful Mind: awareness of and appreciation for differences among human beings.
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THE FUTURE (3)

The Ethical Mind: fulfillment of ones responsibilities as a worker and a citizen.

Armed with these well-honed capacities, a person will be equipped to deal with what is expected in the future. Are we developing such professionals through our professional bodies.

THE PRINCIPLES (1)

Justice and equity also claim four qualities in man: depth of understanding; profoundness of knowledge, fairness of judgment and clearness of mind; because whoever tries his best to understand a problem will have to study it; whoever has the practice of studying subject he is to deal with will develop a clear mind and will always come to correct decisions; whoever tries to achieve all this will have to develop ample patience and forbearance; and whoever does this has done justice to the cause of religion and has led a life of good repute and fame.
(HAZRAT ALI (1400 YEARS AGO)

THE PRINCIPLES (2)

We know now that tolerance is not sufficient toward another religion; we must accept it. Thus, it is not a question of subtraction, it is a question of addition. The truth is the result of all these different sides added together.

(Krishnamurti)

THE PRINCIPLES (3)

A civilization must be judged and assessed, not by the level of power it has reached, but by how it develops and expresses a love of humanity through its laws and institutions. The first and last criterion one must submit to is:
Is it recognizable, and to what level, that man is more a spirit than a machine ?

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THE PRINCIPLES (4)

Not only must we be aware of the nature and structure of the problem and see it completely, but meet it as it arises and resolve it immediately, so that it does not take root in the mind. If one allows a problem to endure for a month or a day, or even for a few minutes, it distorts the mind.

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THE HUMOROUS SIDE

A lawyer is the larval stage of a politician. (Ambrose Bierce)
A lawyer is a person who writes a ten-thousand-word document and calls it a brief. (Franz Kafka) The less people know about how sausages and laws are made, the better theyd sleep at night. (Otto von Bismarck) Those who can, do. Those who cannot, teach. (George Bernard Shaw)
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THE PRESENT WORLD & THE WORLD OF POORS

Capitalism is thriving. Business continue to grow, global trade is booming, multinational corporations are spreading into markets in the developing world and the former Soviet bloc, and technological advancements continue to multiply. But not everyone is benefiting. Global income distribution tells the story: Ninety-four per cent of world income goes to 40 per cent of the people, while the other 60 per cent must live on only 6 per cent of world income. Half of the world lives on two dollars a day or less, while almost a billion people live on less than one dollar a day. And despite the improved lot of many poor, the divide between the haves and is widening. As measured by technical indicators such as the Gini coefficient, income inequality is worse in China than in India.
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THE GOVERNMENTS AND THE SOCIETY (1)

Government can help create the kind of world we all want to live in. There are certain social functions that cannot be organized by private individuals or private organizations national defense, a central bank to regulate the money supply and the banking business, a public school system, and a national health service to ensure medial care for all and minimize the effects of epidemics. Equally important, government establishes and enforces the rules that control and limit capitalism-the traffic laws. In the world economy, rules and regulations concerning globalization are still being debated. An international economic regulatory regime has yet to fully emerge. But on the national and local levels, many governments do a good job of policing free markets. This is especially true in the industrialized world, where capitalism has a long history and where democratic governments have gradually implemented reasonable regulatory systems.
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THE GOVERNMENTS AND THE SOCIETY (2)

The traffic laws for free markets oversee inspection of food and medicine and include prohibitions against consumer fraud, against selling dangerous or defective products, against false advertising and violation of contracts, and against polluting the environment. These laws also create and regulate the information framework within which business is conducted the operation of stock markets, disclosure of company financial information, and standardized accounting and auditing practices. These rules ensure that business is conducted on a level playing field.

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THE GOVERNMENTS AND THE SOCIETY (3)

The traffic laws for business are not perfect, and they are not always enforced well. Thus some companies still deceive consumers, foul the environment, or defraud investors. These problems are especially serious in the developing world, with its often weak or corrupt governments.

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THE GOVERNMENTS AND THE SOCIETY (4)

However, even an excellent government regulatory regime for business is not enough to ensure that serious social problems will be confronted, much less solved. It can affect the way business is done, but it cannot address the areas that business neglects. Business cannot be mandated to fix problems; it needs an incentive to want to do so. Traffic rules can make a place for small cars and trucks and even rickshaws on the global economic highway. But what about the millions of people who do not own even a modest vehicle ? What about the millions of women and children whose basic human needs go unmet ? How can the bottom half of the worlds population be brought into the mainstream world economy and given the capability to compete in the free market ? Economic stop signs and traffic police cannot make this happen.
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THE GOVERNMENTS AND THE SOCIETY (5)

Government is often good at creating things but not so good at shutting them down when they are no longer needed or become burdens. Vested interests especially jobs are created with any new institution. In Bangladesh, for example, workers whose sole job was to wind the clocks on the mantelpieces of government administrators retained their positions, and their salaries, for many years after wind-up clocks were superseded by electrical timepieces. Politics also stands in the way of efficiency in government. Of course, politics can mean accountability. The fact that groups of people demand that government serve their interests and put pressure on their representatives to uphold those interests is an essential feature of democracy.
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THE GOVERNMENTS AND THE SOCIETY (6)

But this same aspect of government sometimes means that progress is thwarted in favour of the interests of one or more powerful groups. For example, look at the illogical, jerry-right, and inefficient health-care system in the United States, which leaves tens of millions of people with no health insurance. Reform of this system has so far been impossible because of powerful insurance and pharmaceutical companies. These inherent weaknesses of government help to explain why the state-controlled economies of the Soviet era ultimately collapsed. They also explain why people around the world are dissatisfied with state-sponsored solutions to social problems. Government must do its part to help alleviate our worst problems, but government alone cannot solve them.
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THE GOVERNMENTS AND THE SOCIETY (7)

There is a debate about the type of growth we should pursue based on serious concerns about the hazards of the World Banks approach. Pro-poor growth and anti-poor growth are often treated as separate policy options. Even if the policymaker identifies and works only for pro-poor growth, he is still missing the real issue. The objective of the policymaker is obviously to generate a spin in the economy so that the poor people are drawn into the spin. But in this conceptualization, the poor people are looked at as objects. In this frame of mind, policymakers miss the tremendous potential of the poor, particularly poor women and the children of poor families. They cannot see the poor as independent actors. They worry about the health, the education, and the jobs of the poor. They can not see that the poor people can be actors themselves. The poor can be self-employed entrepreneurs and create jobs for others.
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PUBLIC CONFIDENCE IN FINANCIAL REPORTING (1)

THREE BASIC ASSUMPTIONS FOR BUILDING PUBLIC CONFIDENCE IN FINANCIAL REPORTING

Improving the credibility of financial reporting and corporate disclosure is both a national issue in each country and an international issue, with action required at both levels. Action will be necessary at all points along the information chain that delivers financial reporting to the market. Corporate management and boards of directors, who have the prime responsibility for financial reporting, auditors, standard setters, regulators, and other participants in the reporting process, such as lawyers, investment bankers, analysts and credit-rating agencies, all have important roles to play and improvements in practices to make if the credibility of financial reporting is to be restored.
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PUBLIC CONFIDENCE IN FINANCIAL REPORTING (2)

Thirdly, a commitment to integrity, both individual and institutional, is essential if our recommendations are to be effective.

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PUBLIC CONFIDENCE IN FINANCIAL REPORTING (3)

THE MEASURES FOR REBUILDING PUBLIC CONFIDENCE IN FINANCIAL REPORTING

Effective corporate ethics codes need to be in place and actively monitored. Corporate management must place greater emphasis on the effectiveness of financial management and controls. In addition, incentives to misstate financial information need to be reduced.

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PUBLIC CONFIDENCE IN FINANCIAL REPORTING (4)

Boards of directors need to improve their oversight of management.

The threats to auditor independence need to be given greater attention in corporate governance processes and by auditors themselves. This includes greater control over auditor provision of non-audit services. Audit effectiveness needs to be raised, primarily through increased attention to quality control processes.

Codes of conducted need to be put in place and their compliance monitored for other participants in the financial reporting process, such as financial analysis, credit rating agencies, legal advisers, and investment banks.
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PUBLIC CONFIDENCE IN FINANCIAL REPORTING (5)

Audit standards and regulations, accounting and reporting practices need to be strengthened. The standard of regulation of issuers also needs to be raised.

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VALUE CREATION BY PROFESSIONAL ACCOUNTANTS

1.

Understanding business;
Perfect comprehension of economic reality; Facilitation and problem solving attitude; not being a compliance oriented regulatory officer; Synthesizing the role for a team consisting of investment banker, corporate law experts, tax advisors, financiers and entrepreneurs;

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3.

4.

This requires change in paradigm, confidence, multifaceted study; clarity of thought and passion for excellence.
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