By: Anthony F. Gioffre, JD, CGFM, CPA, a member of AGA's International Development Committee

Roles of professional accounting associations in supporting economic development and reform

Professional accounting associations perform vital roles in support of economic development and reform. These associations serve the following purposes, among many others:

1. Identification of properly qualified professionals. Professional associations adopt and enforce rigorous criteria for accountants to qualify for, and maintain, membership.

2. Communication of technical developments among members. Professional associations promote the dissemination of knowledge through training, conferences and publications.

3. Advocacy. The positions of associations, and the opinions of their leading members, can play an important role in forming public opinion and public policy.

In many countries outside the world’s most advanced economies, professional accounting associations tend not to be financially or intellectually self-sustainable. It is no surprise that these associations do not entirely fulfill their public service purposes. An important reason for these shortcomings is that the qualification of the associations’ members is performed in a way that is not consistent, rigorous, standardized and otherwise compliant with international requirements.

The importance of examination-based assessment of competencies

In come countries, such as the U.S., we often take for granted the ability to rely on credentials such as the CPA and CGFM designations as evidence of at least a minimum level of technical competence. The CPA exam has existed for so long, and so many hundreds of thousands of accountants have endured it, that CPAs and non-CPAs alike rarely imagine a world without it—nor one without the supporting mini-industry of CPA review courses and materials.

The qualification process requires some entity to determine whether candidates have met all the requirements to be designated as professional accountants. Qualification bodies must assess whether candidates demonstrate the necessary competencies, as a result of appropriate education and experience. Assessment of competence may take many forms, but most commonly is performed by means of a written examination. The development and administration of such an examination is a monumental task. From a purely technical perspective, consider the scope of subject matter in which a professional accountant must be educated in order to comply with International Federation of Accountants’ (IFAC) criteria for professional qualification:

1. Accounting, finance and related knowledge;

2. Organizational and business knowledge; and,

3. Information technology knowledge and competencies.ⁱ

These subjects, seemingly simple enough on the surface, are of course highly complex and cover a vast array of continually evolving topics. Fortunately, there is now a general acceptance of what content a professional accounting qualification examination must encompass. In the area of accounting, finance and related knowledge, for example, the subjects to be covered include the following:

1. Financial accounting and reporting;

2. Management accounting and control;

3. Taxation;

4. Business and commercial law;

5. Audit and assurance;

6. Finance and financial management;

7. Professional values and ethics.ⁱⁱ

This content is described in the International Education Standards (IES's) promulgated by the IFAC. The United Nations Conference on Trade and Development (UNCTAD), through its International Standards of Accounting Reform (ISAR) and Model Accounting Curriculum, further breaks down these subjects. The UNCTAD-ISAR Model Accounting Curriculum, which itself is but an overview (though less summarized than the IES’s), requires 59 pages of text. Clearly, the subject matter in which professional accountants are expected to demonstrate competence is both broad and deep.

Moreover, aside from the complexity of the technical subject matter of professional accountancy, there are many equally challenging aspects of professional qualification exams. These include administration, marketing, dissemination, grading and maintenance. Therefore, it is not surprising that associations with limited resources are unable to conduct qualification programs in accordance with all international standards. Why are qualification exams worth all the fuss?

Ineffective or corrupt certification examinations: winners and losers

Many individuals, groups and entire economies suffer greatly from the lack of a proper accounting examination. However, this sad situation tends to provide great benefits to a few individuals and groups. The main link between these beneficiaries and the “examination vacuum” is the need to qualify accountants as a prerequisite to licensure: even in many of those countries lacking an objective professional accounting exam, accountants must be licensed in order for them to practice before the public.

The absence of an appropriate examination offers the opportunity for rent-seeking individuals to develop a proprietary, opaque examination that satisfies IFAC criteria in form, but not in substance. In many cases, such examinations are used to generate revenue through corrupt practices. The corruption may take one or more of various forms: direct payment to an examination or licensing official; informally requiring examination candidates to attend above-market-cost training at which an official is paid dearly to lecture; making qualification or licensure conditional on providing future favors, such as expressing an unqualified opinion on the financial statements of an exchange-listed firm (with which an official has insider dealings); and so forth. Some associations are so brazen as to forgo altogether the assessment component of the qualification process. However, those that employ corrupt practices tend to assess candidates in an opaque and highly subjective way. One accessible means of injecting subjectivity into the qualification process is to assign heavy weight to a component of the examination in which the candidate answers questions orally rather than in writing.

It is not surprising that beneficiaries of such cozy arrangements fiercely oppose any attempts to disrupt them. Yet, unless some force takes the initiative to disrupt these arrangements, associations of such “qualified professional” accountants simply fail to serve the public interest. If corrupted qualification bodies are unwilling to reform their statutory examinations, then leaders of the accounting community must take it upon themselves to promote reform.

Costs and benefits of sound, standardized certification examinations

One possible reform would be for individual associations to take it upon themselves to perform the examination and qualification function. As suggested above, the scope of this task would probably be too great for any individual association to do on its own. Imagine, for example, each state society of CPAs in the U.S. trying to duplicate the work of the National Association of State Boards of Accountancy (NASBA), which administers the CPA exam. The resources required would probably overwhelm just about any single state society of CPAs.

Moreover, even if all state societies were to have unlimited resources to qualify candidates, there would be strong reasons not to develop state- or association-specific examination systems. If CPAs in various states were qualified in accordance with examinations of varying depth and breadth of subject matter coverage, users of professional accounting services would have to take extra steps in order to distinguish between better- and lesser-qualified accountants. Worse, third-party users of financial information would not have consistent levels of assurance that an entity’s financial statements were subjected to appropriate audit tests.

A model for associations to consider

International standards for an international-minded market

Neither IFAC nor UNCTAD has any formal authority over the licensure of CPAs; nor can either of them mandate how state societies qualify CPA candidates. However, for accounting associations looking to achieve compliance with international norms, IFAC plays an invaluable role. If accounting is the language of business, then IES’s provide standardized requirements for assessing candidates’ fluency in that language. Of course, one’s fluency in accounting may be expressed in many “natural” languagesⁱⁱⁱ other than English. Notwithstanding the growing dominance of the English language, it is inarguably not the only natural language in which business is conducted. In several regions of the world, there is a common natural language in which business is conducted: for example, Spanish in much of Latin America. If a professional association were to establish an English language examination in a region where the language commonly spoken by professional accounting candidates is other than English, then relatively few candidates who meet professional qualification criteria would be certified as such.

In many countries, professional certification faces even bigger problems than the prevalence of many natural languages. Among them is the prevalence of country-specific accounting and auditing standards. The U.S., of course, also has its own accounting standards and auditing standards. But the country-specific nature of standards represents a relatively small problem in the U.S., due to the tremendous size and international dominance of the American economy. To glimpse the difficulties that country-specific standards impose on associations in other countries, imagine a situation in which each state in the U.S. had its own state-specific standards of accounting and auditing. Even a centralized exam administration body such as NASBA could hardly afford to develop, administer and maintain separate qualification examinations for each jurisdiction.

For qualification bodies to serve their public purposes effectively, it helps to have standards that are, well, standardized. Moreover, the immediate users of qualification programs—such as employers of qualified professional accountants—should have a reasonable understanding of what body of knowledge is covered by the examination on which the qualification is based. In an increasingly international economy, there is decreasing justification for having to understand differences between various country-specific sets of accounting standards and auditing standards.

The standards covered by qualification examinations, therefore, should be internationally recognized. In most countries, that means the accounting standards should be International Accounting Standards (IAS; now referred to as International Financial Reporting Standards, or IFRS); and the auditing standards should be International Standards of Auditing (ISA).

From the practical perspective of examination development, the use of international standards provides the benefit of allowing the examining body to capitalize on the broadest possible base of knowledge and literature. Otherwise, examination developers must make extensive use of subjective judgment in developing questions that address the country-specific aspects of standards, and also in determining the correct answers to those questions.

From the similarly practical perspective of examination marketing and dissemination, it makes sense to target an economically viable market of aspiring professionals. There is a global and relatively large market of accountants aspiring to be qualified in accordance with international standards; in contrast, there tends to be a relatively small market of accountants aspiring to be qualified in accordance with the standards of any particular country.

For associations in most countries to have a realistic hope of achieving a true professional qualification that provides adequate coverage of these topics and complies with other international criteria, they need to pool their political, intellectual and monetary capital in order to implement a common qualification examination. Any such examination must assess capabilities and competencies in a uniform body of standards, auditing standards, etc. Aside from the question of international versus national standards, this is essentially what CPA societies in the U.S. have done. All 54 licensing jurisdictions in the U.S. have established the CPA designation, administered by NASBA, as a requirement for licensure. And the CPA examination is required to be qualified as a CPA.

How to address the prevalence of country-specific standards?

Regardless of the above considerations in support of international standards, the unfortunate fact remains that relatively few countries have abandoned country-specific standards. As long as local GAAP or local GAAS does not fully comply with international standards, there will be at least a statutory need to qualify accountants in accordance with local standards.

Fortunately, even in countries where local standards differ from international standards, associations can still use the model outlined above. My personal opinion is that an exam-based qualification program can work just fine even if it ignores country-specific standards altogether. As discussed below, some associations in transition economies have had significant success with this approach.

To the degree that associations must assess candidates’ knowledge of country-specific standards, an initial step for them to perform is to isolate differences between the country specific standards and the internationally recognized standards. This task can be a laborious and contentious one. Once the differences are isolated, however, associations have the information needed to assess candidates’ knowledge of applicable standards. They should do so by developing an additional examination module that tests only those specific topics where local standards differ from international ones. As difficult as it is to identify and test those areas where local standards differ from international ones, it is generally far less difficult to do so than to test all the required subject matter outright.

Even in cases where the underlying principles of local standards deviate greatly from international ones, I believe that professional accounting bodies should ignore local standards, as they are ultimately doomed to become obsolete. Better simply to defer the statutory examination process to state-sponsored licensing bodies or their closely controlled associations.

In developing and transition economies with weak associations of professional accountants, the associations’ problems extend far beyond the technical matters of national versus international standards. An even bigger hurdle is to identify the potential population of professional accountants, and to foster the demand for their services. How to do so?

Developing the supply of professional accountants

For reasons described above, professional accounting associations should use rigorous examinations as the assessment tool of choice in the qualification process. There are many reasons why it will be difficult for many associations to take this step. For one, many candidates for association membership will be unwilling or unable to undertake the personal commitment needed to pass a rigorous examination—especially one that encompasses all the subject matter required of a professional accountant. For the many associations that had marketed themselves to all accountants, it will be difficult to believe that they will benefit from targeting only a small subset of that population. One question for associations to consider is: just how small is the population of accountants who are willing to undertake a series of professional accounting examinations?

In some countries, particularly those still making a transition from central planning to a market economy, many senior managers of enterprises are not aware of just how sorely they need the services of skilled accountants. Associations should use their public relations skills to educate business managers in the benefits of employing qualified association members.

In addition to fostering demand for qualified accountants, associations should of course concentrate their efforts on developing their supply. Unfortunately, associations are likely to find that viable candidates for a professional accounting qualification are few and far between. Moreover, the near-term supply and demand are more likely to be for accounting technicians.

The concept of accounting technicians

Accounting technicians are “staff engaged in technical accounting work who are directed by, and support professional accountants.... The basic distinction between professional and technical accounting staff roles is between strategy and policy making on the one hand and implementation and support on the other....” ^iv In most entities, especially medium to large ones, it is likely that the number of “doers” will significantly exceed the number of overseers. It is also important to note that a significant number of doers must possess competencies far beyond the merely clerical, even if those competencies are not of the full depth and breadth expected of professional accountants. IFAC refers to these key individuals as “technical accounting staff”^v. As organizations conduct their recruiting efforts and oversee the training and development of their staff, it is very valuable for these organizations to know which candidates for employment, as well as actual employees, have been assessed as competent to perform as accounting technicians.

IFAC is very careful to emphasize, “The term ‘technical accounting staff’ does not include trainees who are in the process of qualifying as professional accountants.” There are various political and historical reasons—which need not preoccupy this discussion—why IFAC does so. The fact of the matter, however, is that if an assessment regimen that is appropriate to qualify accounting technicians, it forms a strong foundation for prospective professional accountants to obtain further education and experience in order to achieve professional qualification. The accounting technician subjects in which IFAC places the greatest emphasis are: financial accounting (including financial statement preparation); management accounting and control (including cost accounting, internal controls and project evaluation); business law; and taxation.

Which subjects to assess by examination?

As with the qualification of professional accountants, it is critically important that a technically proficient and rigorously controlled examination be the central component of the qualification of accounting technicians. But should all subjects be assessed by examination, or may some the assessed by other means? As a purely practical matter, the vast scope of subject matter required of accountants means that it would be almost impossible to assess competence in all subjects by means of examination. My experiences suggest that it is most effective to employ examinations to assess competence in the area of “accounting, finance and related knowledge.” Probably this is not a very controversial observation. As discussed above, assessing even this one broad area is an exceedingly complex and demanding task. With respect to “organizational and business knowledge” and “information technology knowledge and competences,” associations should consider other assessment techniques if they lack the resources to assess these areas by means of examination. For example, assessment of competence may be devolved to a local training provider, or even to the candidate’s employer.

Using these subjects as a foundation, an examination-focused qualification system might look something like the following:
 

There are many potential variations on this model, and there are few hard and fast international requirements regarding which competencies must be assessed by means of examination and which may be assessed by other means.

Train, train, train

In countries where there is no rigorous, comprehensive, examination-based qualification, there is unlikely to be a dependable and adequate supply of effective and affordable training programs to help candidates pass such exams. In these environments, it would be ideal for associations to dedicate extensive resources toward an intensive training-of-trainers program. Associations would then deploy these trainers to conduct widespread and subsidized training of practitioners. The associations would, in parallel, coordinate closely with leading universities to improve accounting curricula as needed.

In reality, few associations will have the resources to fulfill this ideal. Associations will need to utilize their limited resources to support members’ access to training. At a minimum, associations should identify a body of self-study textbooks, and other materials if available, that cover all the required subject matter.

An illustrative application of this model: the Certified International Professional Accountant examination

In countries of the Commonwealth of Independent States, leaders of many fledgling professional accounting associations faced these very problems, among many others. In seeking a solution, they capitalized on the fact that Russian is widely spoken throughout this vast region spanning 11 time zones. The qualification examinations administered by most professional associations in this part of the world were generally of poor quality or consistency. In many other cases, government and/or private officials corrupted the examination component of the qualification and licensure process.

As a result, not just employers but even many accountants had trouble distinguishing between qualification and licensure. The concept of professional qualification per se generated little interest in much of the marketplace, so even those few associations that administered reasonably rigorous examinations, found it difficult to achieve widespread market recognition for the resulting qualification or the members who held it. The myriad existing certifications, in turn, held little prestige.

Only designations offered by associations such as the AICPA and ACCA held much influence in the marketplace. But because these examinations are administered only in English—and, in the case of the CPA, administered only within U.S. territory—only a tiny corps of highly elite accountants were able even to sit for these associations’ qualification exams. The vast majority of potentially qualified professionals had no opportunity to demonstrate their qualification for professional certification. To compound matters, only a small number of large, profitable organizations could afford to hire accountants who were both professionally qualified and fluent in English. Therefore, most enterprises lacked access to sound financial management skills.

Fortunately, a progressive association in tiny Kyrgyzstan was administering a rigorous Russian-language certification examination. Given the economic development needs of the region, this examination focused on the essential principles of financial accounting needed by technical accountants. A key aspect of this examination’s success was that sponsor associations made concerted efforts to provide affordable and widespread training in all aspects of the subject matter covered. The corresponding designation eventually became known as the Certified Accounting Practitioner, or CAP^vi. This exam was gradually gaining a certain reputation for rigor and integrity.

In Kazakhstan, a progressive association of auditors, led by a respected and tenacious president and several colleagues, had been engaged for years in a fierce battle against the entrenched government interests that benefited from a corrupt qualification process. This association decided to embark on the even more ambitious initiative of implementing a rigorous, comprehensive, independent professional certification examination. This designation eventually became known as the Certified International Professional Accountant, or CIPA.

Fundamental to both associations’ efforts was a total commitment to examination integrity, as well as a willingness to engage advice and assistance from international donors. Ironically, one indication of these examinations’ success was that the corresponding certification became so valuable that some unscrupulous accountants attempted to forge qualification certificates or offer unprecedented bribes in hopes of obtaining an authentic certificate.

Several associations in the neighboring countries of Uzbekistan and Tajikistan took note of these successful examinations, and agreed that they should join to establish common qualification criteria. They established an international council to document these criteria and oversee member associations’ compliance with them. Through this entity, named the International Council of Certified Accountants and Auditors (ICCAA), the member associations established the CAP and CIPA examinations as representing the common minimum examination component of their qualification criteria. They also mandated compliance with international requirements for education and experience. Charter members of ICCAA consisted of seven associations from countries of the Commonwealth of Independent States (CIS).

When ICCAA was formed, it was already apparent to all that the administrative infrastructure required to develop, maintain, administer and grade such an examination program was too great to be done informally. The members of ICCAA therefore also established a center for the development, administration, grading and maintenance of the examinations. Within each country, they supplemented this center by providing resources to support these examination functions. Together, this network of examination resources is known as the CIPA Examination Network, or CIPAEN.

ICCAA member associations agreed on the following framework for examining the competencies of technicians (“CAPs”) and professionals (“CIPAs):
 

The only country-specific content covered by these examinations is that of Taxation and Business Law. All other examinations cover internationally recognized standards, principles and practices.

Through CIPAEN, the member associations of ICCAA have had great success in developing and deploying the CAP and CIPA examination systems, which together are referred to as the CIPA program. The CIPA program examinations have been offered quarterly. Over a recent two-year period, about 30,000 candidates attempted an average of about 5,000 examinations each quarter—in Central Asia alone. Despite relatively low annual per capita GDP levels—ranging from about $1,000 in Tajikistan to about $7,500 in the Russian Federation—candidates are more than willing to pay fees of up to $75 to attempt these examinations, in addition to the costs of reference texts and training. Perhaps more important, employers have started to use the CAP and CIPA designations as a criterion in making their hiring decisions.

Several associations in the Russian Federation, Ukraine and Moldova have since taken notice, and have become members of ICCAA. The increasing success of this program has drawn the attention of the world’s leading accountancy bodies, several of which have partnered with ICCAA and CIPAEN.

As suggested earlier, a driving factor of their success is that these associations have required that new members pass a rigorous, standardized, uniform examination. In doing so, these associations have become essentially exclusive. But they are exclusive not in the sense that they try to prevent the admission of any new members. Rather, they actively encourage applications for membership from a limited population of those who are true candidates for professional qualification^vii.

Now that these associations are courting only qualified candidates, they are attracting more applicants for membership. And those already qualified have a desire to remain in this elite corps. As a result, these discriminating associations are already having better success at timely collecting annual membership dues.

It is worth noting that these associations made extensive use of the international assistance available to them. This assistance, primarily through a visionary and highly energetic development officer at USAID, came almost entirely in the form of technical advisers rather than monetary funding. As a result of the progress demonstrated by ICCAA member associations, USAID has continued to provide technical assistance through CIPAEN.

Implications for development of public sector accounting associations

It is clearly important to develop associations of private (or enterprise) sector professional accountants. However, it is arguably even more important to develop associations of public sector professional accountants. In many countries, various forms of corruption and inefficiency in the private sector are but joint enterprises with the public sector, from which their pernicious effects spread and permeate the economy. The absence of a sound system of qualifying public sector professionals serves only to institutionalize corruption and inefficiency. So there is a strong argument that associations of public sector accountants should implement rigorous examinations as part of their qualification process. Why hasn’t that happened?

Professional qualification has historically played a smaller role in the public sector than in the private sector, for several reasons. Relatively few sovereign governments have imposed on themselves the obligation to produce audited GAAP-compliant financial statements, so it is not surprising that the “good enough for government work” mentality often applied to governments’ finances. Also, the scope of subject matter expertise required for government accountants to be effective is so broad that the professional qualification required for licensure—such as the CPA in the U.S.—provides relatively low assurance from a government perspective that a person possessing that qualification has adequate competencies to enable on-the-job success.

Although the story of AGA’s implementation of the examination-based CGFM designation has been a highly successful one, I believe there are several reasons why the CGFM model has a low chance of achieving similar success in most countries. AGA’s effective implementation of a comprehensive and entirely new examination represented an unusual confluence of favorable circumstances, such as: an already thriving association with a rich tradition of public service; extensive distribution channels, particularly in the form of strong local chapters; effective leadership and strategic management; a broad base of members with strong technical skills; adequate monetary resources; and considerable demand for accounting services, generated by the world’s largest public sector. Further, the CGFM’s success benefited greatly from the boost in demand for professional skills, driven by the CFO Act and other financial management legislation. Few associations are likely to encounter this set of factors.

A model of foundational and specialized qualifications

How can the model described above work for associations of public sector professional accountants? By building on the foundation offered by qualification bodies that assess competence in the subject matter required of private sector professionals, there is a (relatively) very limited scope of subject matter in which public sector association needs to determine the qualification of candidates for specialization. In the realm of public sector specialization, the additional assessment can focus on those areas in which the additional subject matter required of public sector accountants is most extensive—for example, in the areas of financial accounting and reporting, and budgetary controls.

Using this approach to assess the competence of public sector professional candidates, an association could employ the following framework:
 

The subject matter covered by the foundational examinations is applicable to all professional accountants, regardless of specialization. The standards covered by the Financial Accounting and Reporting examination should be IFRS’s, and the standards covered by the Audit and Assurance examination should be ISA’s. In the areas of management accounting and control, and finance and financial management, essential principles and practices are, generally speaking, neither regulated nor country-specific; therefore, examinations covering these subjects may readily be standardized. A public sector accounting association could therefore pool its resources with other professional associations, whether public sector or private sector, regardless of country. These associations would need to share just two characteristics in order to work together: an intent to deploy a rigorous, thorough examination; and, a common natural language.

Associations of specialized professionals, such as public sector accountants, would then need to develop and deploy an examination that covers the incremental subject matter that is additional to, or different from, what is required of the foundational professional qualification. (If associations collaborate from different countries, they will likely also have to develop separate examinations of taxation and law.)

Translating such collaboration from concept to reality might well seem an extraordinarily difficult task, and indeed it is. However, the member associations of ICCAA have demonstrated that with sound strategy and hard work, they can achieve the extraordinary.

Using this framework, associations of professional accountants would have a strong basis for expanding their collaboration beyond examination of candidates for qualification. One possibility is to establish mutual recognition and equivalency of qualifications—a topic on which IFAC’s education committee is currently working. The seemingly mundane topics of accounting qualification and association development offer some exciting possibilities. Stay tuned!

Anthony F. Gioffre, JD, CGFM, CPA, a member of AGA's Northern Virginia Chapter, is a member of AGA’s International Development Committee.

End Notes