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WORLD TRADE RESTRICTED S/C/W/316 7 June 2010 ORGANIZATION (10-3109) Council for Trade in Services

ACCOUNTANCY SERVICES

Background Note by the Secretariat1

I. INTRODUCTION

1. This Note has been prepared at the request of the Council for Trade in Services, with a view to stimulating discussions in the Council on accountancy services. It provides background information, and updates a previous Note on trade in accountancy services (S/C/W/73, dated 4 December 1998). This Note focuses on developments and issues considered to be most relevant to the GATS; it is not intended to provide a comprehensive account of the sector.2

2. Since the previous Note, significant events have occurred involving the accountancy sector, including adoption by the WTO Council for Trade in Services of the Disciplines on Domestic Regulation in the Accountancy Sector on 14 December 1998; the collapse, which resulted in the demise of one of the former "Big Five" entities; the Asian financial crisis and the World Bank/IMF Reports on the Observance of Standards and Codes (ROSC) initiative; and the international attention that regulatory issues have received in connection with the current global economic and financial crisis.3

3. As highlighted in the previous version of this paper, accountancy is an essential input in the production of both physical goods and other services. Perhaps most important is accountancy's role in respect to the implementation and enforcement of prudential requirements and other financial regulatory measures. Despite the extensive international networks of the biggest firms, geographic markets for accountancy are still considered to be national, or even sub-national, due to pervasive entry and conduct regulation that varies significantly between regulatory jurisdictions.4 Consequently, the structures of the remaining "Big 4" accountancy firms, unlike most of their multinational clients, more closely resembles those of franchising networks.

1 This document has been prepared under the Secretariat's own responsibility and without prejudice to the positions of Members and to their rights and obligations under the WTO. 2 It should also be mentioned that the asymmetrical availability of sources of information across regions can well be observed in the Note. 3 In addition, there has been a further shift in the governance of international accounting standard- setting, including the emergence of independent external oversight bodies, while the international firm networks have further evolved their business models and structures. With respect to the current financial crisis, accountancy practices have largely not been blamed, but substantial changes have nonetheless been envisioned as a part of dealing with the crisis. See also section IV of WTO document S/FIN/W/73, 3 February 2010, for a discussion of the financial crisis. 4 As observed by the previous Note (para 3), "Perhaps the most significant issue in respect to international trade in accountancy services is the widespread nature of local qualification and licensing requirements, both in regard to individual practitioners and as conditions for the ownership and management of firms."

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II. DESCRIPTION OF THE SECTOR

4. The domain of accountancy services has been defined differently by WTO Member governments, and the boundaries with other regulated (e.g. the legal with respect to taxation) or non-regulated services providers (e.g. management ) are therefore not delineated consistently. With respect to the Services Sectoral Classification List (MTN.GNS/W/120), accounting, auditing and services are part of subsector "A." of "1. Business Services" The corresponding classification number under the United Nations' "Provisional Central Product Classification"(CPC) is 862.

5. Under the Provisional CPC, the category of "Accounting, auditing and bookkeeping services" is further sub-divided, as follows:

Accounting and auditing services (CPC 8621)

• Financial auditing services (CPC 86211) Examination services of the accounting records and other supporting evidence of an organization for the purpose of expressing an opinion as to whether financial statements of the organization present fairly its position as at a given date and the results of its operations for the period ended on that date in accordance with generally accepted accounting principles.

• Accounting review services (CPC 86212) Reviewing services of annual and interim financial statements and other accounting information. The scope of a review is less than that of an audit and therefore the level of assurance provided is lower

• Compilation of financial statements services (CPC 86213) Compilation services of financial statements from information provided by the client. No assurances regarding the accuracy of the resulting statements are provided. Preparation services of business tax returns, when provided as a bundle with the preparation of financial statements for a single fee, are classified here. Exclusion: Business tax preparation services, when provided as separate services, are classified in sub-class 86302 (Business tax preparation and review services).

• Other accounting services (CPC 86219) Other accounting services such as attestations, valuations, preparation services of pro forma statements, etc.

Bookkeeping services, except tax returns (CPC 8622)

• Bookkeeping services, except tax returns (CPC 86220) Bookkeeping services consisting in classifying and recording business transactions in terms of money or some unit of measurement in the books of account. Exclusion: Bookkeeping services related to tax returns are classified in subclass 86302 (Business tax preparation and review services).

6. The adoption of CPC Rev. 1 brought little substantive change in regard to accounting, auditing and bookkeeping services, as described in the Secretariat document, "Detailed Analysis of the Modifications Brought about by the Revision of the Central Product Classification: ", dated 27 March 1998 (S/CSC/W/6/Add.10, p. 4). The revisions for accountancy are limited to minor changes in definition and wording.

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7. The definition of accountancy services per se should be distinguished from the expanding range of activities conducted by firms: for example, the Federation of European (FEE) notes that "activities of professional accountants in public practice, business and government are increasingly varied. They include well known activities such as preparation of financial information, tax services, statutory audit, as well as many innovative services in the areas of sustainability, strategy and management consultancy"5 (Table 1). Consequently, as the previous Note observed, "some may argue that a distinction should be made, in certain cases, between accountancy services and services provided by accountancy firms. Others would argue that if a service is provided by an accountancy firm it is, by definition, an accountancy service".6

Table 1: The range of activities of the accountancy profession Audit and other Sustainability Statutory audit of historical financial, statements Reporting advice on the provision of reliable (private and public sector), audit of contributions in information to stakeholders on environmental, social kind, voluntary audit, forensic , operational and economic performance of organisations, audits, reports on internal controls... assurance engagement in relation to sustainability matters... Accounting Legal services Maintenance of financial records and preparation of Preparation of legal documents, support to the general financial information, consulting on accounting assembly, advice on company law, regulated procedures, design and implementation of accounting insolvency services... systems and related internal controls... Tax Administrative and human resources engagements Preparing tax returns, evaluating the tax implications Payroll preparation, preparation of of an operation, assistance in negotiations with the contracts, relations with social security institutions, taxation authorities and in courts... recruitment... Consultancy Business , financial due diligence, investment Management consultancy, strategic advice, design analysis, financial planning, debt restructuring and and implementation of business information recapitalisation, trusteeship... technology systems, organisation of internal controls, consulting in and treasury management... Source: Federation of European Accountants (FEE).

III. ECONOMIC IMPORTANCE OF THE SECTOR AND ITS MAIN ECONOMIC FEATURES

8. As indicated above, the accountancy profession provides services that are essential to the functioning of any economic system. While the sector's overall economic importance therefore cannot be measured only in terms of employment or sales, relevant statistics would nonetheless help identify key trends. However, significant lacunae have persisted. In 1998, the previous Note observed that many statistics for accountancy were apparently unavailable. To a surprising degree, this appears to still be the case, due at least partly to the lack of comparable definitions.

9. On the basis of national balance of payments (BOP) data, WTO figures for exports of accounting, auditing, bookkeeping and tax consulting services (Annex 1), indicate that the

5 FEE 2008, p. 7. Similarly, the OECD observes that services provided by the accounting professions "generally include statutory and internal audits, other accountancy services - such as advice on financial controls, due diligence, and insolvency practice - and tax advisory services. Accountants may also participate in a wide range of related business activities, such as business valuation, forensic investigation, strategic planning, sales and marketing, and information technology and human resources management" (OECD 2009, Policy Roundtables, Competition and Regulation in Auditing and Related Professions, p. 11). 6 WTO document S/WPPS/W/2, 27 June 1995, p. 7.

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Netherlands had the largest share in 2008, estimated at US$3.35 billion, followed by the United Kingdom and Luxembourg, at US$2.55 billion and US$1.33 billion, respectively.7 With regard to imports (Annex 2), the United States8 ranked first, estimated at US$2.27 billion, followed by the Russian Federation and Sweden, at US$533 million and US$377 million, respectively.

10. With respect to affiliate sales for accountancy, little information is evidently available.9 It appears reasonable to assume, however, that these sales are significantly larger.10 Complicating the issue, in some cases data have been suppressed due to privacy concerns.11

11. With regard to domestic sales, employment, the number and size of firms, etc., national statistical offices do report information for accountancy, but comparable global data is evidently unavailable. Some estimates are published by researchers, for example with respect to Certified Public Accountants, and they show wide variations between countries (Annex 3). Not surprising, the designation of those considered members of the profession has an important impact on the size of the accountancy sector. In some jurisdictions, for example, designation is equivalent to , irrespective of the subsequent career path or activities. In others, the professional designation is equivalent to a functional title, which the holder must surrender if they cease to undertake accounting activities.12

12. Selected data regarding accountancy firms, employment, etc. is also available on the websites of national accountancy associations. For example, the Chinese Institute of Certified Public Accountants (CICPA) in 2006 listed 69,705 practicing CPAs as members, 5,671 accounting firms, 618 branches, and 1,431 partnerships (Annex 4). With respect to professional activities, the American Institute of Certified Public Accountants (AICPA) indicates that the great majority of its members are active in public accounting and business/industry, with much smaller numbers working in government, consulting, education and law (Annex 5). Worldwide, the International Federation of Accountants (IFAC), the global organization for the accountancy profession, in 2010 included 159 members and associates in 124 countries and jurisdictions, representing more than 2.5 million accountants employed in public practice, industry and commerce, government, and academia.13

13. Of the accountancy associations, as recorded in The 's World Survey 2009, the largest in terms of membership is the AICPA, with 367,569 members in 2009, followed by the CICPA

7 Unfortunately, there are no aggregate figures available for the EU 27. In the BOP, the category "accounting, auditing, book-keeping and tax consulting services" covers "the recording of commercial transactions for businesses and others; examination services of accounting records and financial statements, business tax planning and consulting, and preparation of tax documents". There are no bilateral trade figures for the US, nor for EU Members. Similarly, comparable worldwide data on accountancy employment, value added or FATS are apparently unavailable. 8 The break in series in US figures is due to the fact that up to 2005, data covered only transactions between unaffiliated parties, while as from 2006 they cover total trade (both unaffiliated and affiliated). This revision was part of a larger, important revision of US trade in services figures as contained in the US Bureau of Economic Analysis Survey of Current Business of October 2008. 9 As noted in an earlier Secretariat document, A Review of Statistics on Trade Flows in Services (WTO document S/C/W/27, 10 November 1997), statistics for many services sectors are generally unavailable, especially data on the trade of foreign affiliates. 10 The USITC 2009 Annual Report of Recent Trends in US Services Trade observed that affiliate transactions were the principal means of providing services to overseas customers, and accounted for 66 per cent of overall US services trade volume in 2006 (p. 1-4). 11 For example, the 2009 USITC Annual Report, with respect to sales by foreign affiliates of US firms, states that "accounting, bookkeeping, payroll services, and specialized design services data were suppressed to avoid disclosure of data of individual companies" (footnote c, p. 2-9). 12 OECD 1999, Policy Roundtables, Competition in Professional Services, p.56. 13 A listing of IFAC members and their websites can be found at http://web.ifac.org/about/member- bodies. IFAC has collected national-level information regarding members, but it has not yet been published.

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with an estimated 165, 000, and the Institute of Chartered Accountants of India (ICAI) with 157,241 (Table 2). In terms of students the rankings are very different, with the ICAI by far the largest, at 560,880, followed by the U.K.'s Association of Chartered Accountants (ACCA) at 347, 280 and the Institute of and Works Accountants of India (ICWAI) at 150,000 (Table 3). The ACCA is the most globalized of the accountancy associations, with 55 per cent of its nearly 135,000 members based outside of the U.K.14

Table 2: World's Largest Professional Accountancy Bodies by Membership, 2009 Accountancy Associations Membership American Institute of Certified Public Accountants (AICPA) 367,569 Chinese Institute of Certified Public Accountants (CICPA) 165,000* Institute of Chartered Accountants in India (ICAI) 157,241 Association of Chartered Certified Accountants (ACCA) 134,748 Institute of Chartered Accountants in England and Wales (ICAEW) 132,411 Consiglio Nazionale dei Dottori Commercialisti ed Esperti Contabili (CNDCEC) 110,469 CPA Australia 80,255 Union of Chambers of Certified Public Accountants of Turkey (TURMOB) 79,578 Chartered Institute of Management Accountants (CIMA) 76,368 Canadian Institute of Chartered Accountants (CICA) 75,670 Institute of Management Accountants, US (IMA) 58,907 Institute of Chartered Accountants, Australia (ICAA) 51,338 Canada - Certified General Accountants Association of Canada (CGA) 47,062 Institute of Cost and Works Accountants in India (ICWAI) 42,000 The Society of Management Accountants of Canada (CMA Canada) 40,307 South African Institute of Chartered Accountants (SAICA) 29,377 Japanese Institute of Certified Opublic Accountants (JICPA) 28,237 Malaysian Institute of Accountants (MIA) 26,200* Stowarzyszenie Ksiegowych w Polsce (SKWP) 21,213 Singapore Institute of Certified Public Accountants (SICPA) 20,000* Source: The Accountant, World Accounting Survey, 2009. * Estimate

Table 3: World's Largest Professional Accountancy Bodies by Students, 2009 Accountancy Associations Institute of Chartered Accountants in India (ICAI) 560,880 Association of Chartered Certified Accountants (ACCA) 347,281 Institute of Cost and Works Accountants in India (ICWAI) 150,000 Chartered Institute of Management Accountants (CIMA) 91,524 Chinese Institute of Certified Public Accountants (CICPA) 60,000* CPA Australia 48,730 Certified General Accountants Association of Canada (CGA Canada) 25,075 Institute of Chartered Accountants in England and Wales (ICAEW) 16,165 Institute of Management Accountants, US (IMA) 16,032 Canadian Institute of Chartered Accountants (CICA) 12,852 Union of Chambers of Certified Public Accountants of Turkey (TURMOB) 12,734 Institute of Chartered Accountants, Australia (ICAA) 12,547 South African Institute of Chartered Accountants (SAICA) 10,380 American Institute of Certified Public Accountants (AICPA) of Management Accountants 8,830 of Canada (CMA Canada) 8,380 National Institute of Accountants, Australia (NIA) 7,853 National Chamber of Statutory Auditors, Poland (NCSA) 7,654 Conseil Superieur de l'Ordre des Experts Comptables (CSOEC) 6,223 Compagnie Nationale des Commissaires aux Comptes (CNCC) 5,739 Singapore Institute of Certified Public Accountants (SICPA) 5,000* Source: The Accountant, World Accounting Survey, 2009. * Estimate

14 The Accountant, World Survey 2009: Crossing borders, December 2009.

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14. Among accountancy firms, the top international networks/associations by income in 2008 are listed in (Table 4). For 2009, for the more than 40 organisations surveyed by World Accounting Intelligence, network dropped 6 per cent on average due to the economic crisis, to US$122 billion. PricewaterhouseCoopers International (PwC), the largest network firm, reported fee income of US$26.2 billion, a 7 per cent decline. registered a 5 per cent drop in , to US$26.1 billion.15 KPMG reported an 11 per cent drop in revenue. RSM International registered an increase of 8 per cent, to US$3.75 billion, while at Grant Thornton International revenue contracted by 9 per cent to US$3.59 billion. Baker Tilly International was the only other top-10 network to report a revenue increase. Audit demand in 2009 was affected by severe fee reductions, while tax demand suffered as clients generally paid less tax, affecting the neeed for tax planning advice. The weakest area was corporate finance, while restructuring services were strong.16

Table 4: Top International Networks / Associations by Income: 2008 Firm Name Income Growth rate Year ending (US$ mil.) (%) Pricewaterhouse Coopers International 28,185 14 30/06/2008 Deliotte 27,400 19 31/05/2008 Ernst & Young Global 24,500 16 30/06/2008 KPMG International 22,690 15 30/09/2008 BDO International 5,145 9 30/09/2008 Grant Thornton International 4,000 14 30/09/2008 RSM International 3,577 19 31/12/2008 Praxity 3,233 14 31/12/2008 Baker Tilly International 2,956 18 30/06/2008 Crowe Horwath International 2,895 19 31/12/2008 Source: World Accounting Intelligence (http://www.vrl-archives.com/wai/).

A. FROM THE "BIG 8" TO THE "BIG 4"

15. Until the late 1980s, as noted in a 2009 OECD study on the auditing profession, there were eight major accounting firms that provided "few services other than auditing".17 Since 2003, however, only four firms now audit the vast majority of large public companies, while deriving very significant portions of their income from non-auditing services.18 Reasons for the , other than the Enron case involving (see paragraph 35), are related to the characteristics of the profession, e.g. accounting firms need to be big in order to compete, but also include the need to cover litigation risks, , and the complexity of rules.19

16. Increased concentration does not necessarily imply a lack of competition. Instead of prices, however, it focuses on reputation, which is evidently more important as a competitive parameter. A survey by the US Government Accountability Office (GAO) in 2008 suggested that the increase in concentration did not lead to higher prices charged by the Big Four. In the EU, in addition to national

15 For Ernst & Young, their website reported 2009 revenues of US$21.4 billion (www.ey.com). 16 World Accounting Intelligence, Global accounting firms suffer revenue decline, January 2010 (Available online, at http://www.vrl-financial-news.com/accounting/world-accounting-intelligence/issues/wai- 2010/january-2010/global-accounting-firms-suffer.aspx). 17 OECD 2009, op. cit., p. 7. The provision of statutory audits, in all the OECD countries, is an exclusive right reserved for ‘public accountants’. 18 The current number of large accounting firms is now similar to that of the credit rating industry. (OECD 2009 is the main source for this and the following three paragraphs.) 19 The US Government Accountability Office (known as the General Accounting Office until July 2004) found that the mergers between the former Big Eight firms in the 1980s and 1990s could be explained by the need for accounting firms to grow in order to keep up with their clients, taking advantage of economies of scale, expanding industry-specific knowledge and technical expertise, and increasing the capital base in order to spread risk.

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liability rules that prevent new players from entering the market, conflict of interest rules on ownership have been identified as a major justification for market concentration.20 (See also the competition section of Part IV.)

17. Accounting firms themselves (including the Big Four) take concerns about the existence of conflicts of interest within their organizational structures seriously. Consequently, Ernst & Young sold its consulting practices to the French IT services company Cap Gemini in May 2000 and PricewaterhouseCoopers sold its consultancy business to IBM in October 2002. KPMG divested its American consulting activities in January 2000, while it sold its consulting units in the UK and in the Netherlands in August 2002. Only Deloitte and Touche had not divested its practices at that time.21

18. The current "Big 4" accounting firms (Box 1), i.e. PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young, and KPMG, are responsible for the vast majority of the audits for publicly traded companies (and many private companies) world-wide. As noted above, these organizations are actually networks of firms rather than single entities, with members in the network generally operating under a common name and observing common professional and service standards. At the national – or sub-national – level, however, member firms are required to meet the entry and conduct regulations that apply in that particular jurisdiction.22

Box 1. The "Big 4" Accounting Firms

"PricewaterhouseCoopers (PwC) refers to the network of member firms of PricewaterhouseCoopers International Limited, a UK limited company. Each of these member firms is a separate and independent legal entity. In most OECD countries the member firms operate under the name PwC, but some variations exist. In the Republic of Korea, for example, they are called Samil PwC. In Japan, where PwC has two offices, the Tokyo office is named PwC HRS, whereas the Kyoto office is a co-operating firm named Kyoto Audit Corporation. According to the information presented on its website, PwC provides services in the fields of assurance, tax, human resources, transactions, performance improvement and crisis management. Its world- wide gross revenues for the ended 30 June 2008 equaled US$28.2 billion (out of which 13.8 billion was related to assurance), the highest of the Big Four organizations. More than 155,000 people in 153 countries worked for PwC in 2008.

The co-ordinating entity of Deloitte Touche Tohmatsu (DTT) is a Swiss Verein. All the member firms are legally separate and independent entities, operating under the name “Deloitte”, “Deloitte & Touche”, “Deloitte Touche Tohmatsu” or other related names (for example, Deloitte Anjin LLC in the Republic of Korea). In its own words, DTT “provides audit, tax, consulting and financial advisory services to public and private clients spanning multiple industries”. The organization is active in 140 countries and has about 165,000 employees (more than any other of the Big Four). Aggregate revenues of DTT member firms for the fiscal year ended 31 May 2008 totalled US$27.4 billion.

20 The European Commission initiated a public consultation on conflicts of interest and ownership rules in 2008, and found that factors affecting competition included brand recognition and perception of reputation, technical expertise, differences among the global reach of firms, and differences in national requirements. 21 To some extent the sales were evidently also a result of changes in regulations. The US Securities and Exchange Commission (SEC) in 2001 amended its rules regarding . Subsequent to the Sarbanes-Oxley Act in 2002, the SEC issued new independence rules in March 2003 that placed additional limitations on management consulting and other nonaudit services that firms can provide to their audit clients. 22 The GAO found that the Big Four in 2007 audited almost all (98 per cent) of the largest public companies. In the UK, it was found that the Big Four audited all but one FTSE 100 company, and 242 of the FTSE 250 companies.

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The UK limited company ‘Ernst & Young Global Limited’ is the principal governance entity of the global Ernst & Young organization. In many of the OECD countries (such as the United States, the Republic of Korea, the Netherlands, Sweden and Turkey) its member firms are called Ernst & Young. In some other countries the names are different: for example, in Japan the member firms operate under the name Ernst & Young ShinNihon and in Mexico they are called Mancera. The world-wide revenues of Ernst & Young were 24.5 billion for the fiscal year ending (p. 15) 30 June 2008. The number of employees in 2008 was 135,000. The organization presents itself as “a global leader in assurance, tax, transaction and advisory services”.

KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms, which are located in more than 140 countries, are affiliated with KPMG International. In Europe, KPMG has recently merged its firms in the UK, Germany and Switzerland, to be joined by its firms in the Netherlands and Spain, making KPMG Europe the largest accounting firm in Europe.16 According to information presented on its website, KPMG “provides audit, tax and advisory services and industry insight to help organizations negotiate risks and perform in the dynamic and challenging environments in which they do business”. Combined revenues for its member firms, which employed 137,000 people last year, were US$22.7 billion for the fiscal year ended September 30, 2008."

(Source: OECD, Policy Roundtables, Competition and Regulation in Auditing and Related Professions, 2009, p. 14.)

B. PROSPECTS FOR THE FUTURE

19. The Association of Chartered Accountants (ACCA) in 2009 released a report entitled Accountancy: The future outlook.23 The report includes sections on demand and future skills, as well as on future business conditions. With respect to accountancy demand, the report noted that CFOs, partners and senior accountants generally predicted buoyant demand for qualified accountants in the short term, with almost two-thirds of those surveyed expecting demand to increase. Despite the global economic downturn, industrial growth – both domestic and global – is expected to trigger greater demand for qualified accountants. The need for accountants in developing economies such as China, India and in the Middle East was particularly highlighted.

20. While many survey respondents believed that demand for qualified accountants would increase because of economic growth, others focused on the global economic downturn. They believed that a more difficult business climate would make the financial insights of qualified accountants even more valuable. Many survey respondents believed that the environment for accountancy was becoming increasingly complex, due to additional regulatory burdens, global competition, and in business finance and transactions.

21. With respect to accountancy skills, the most important financial skill expected to be in greater demand was enterprise risk management, i.e. aiming to manage risks by taking an integrated view of the various uncertainties that exist across an organisation. Other frequently mentioned financial skills were strategic scenario planning, and skills in improving the use of data or knowledge.

23 The report was based on a telephone survey of over 750 CFOs, partners and senior accountants, across business sectors, across three continents, in eight countries: Malaysia, UK, Republic of Ireland, Singapore, Zambia, Hong Kong, Sri Lanka and South Africa. Respondents were from the following business sectors: 40 per cent public practice, 40 per cent corporate sector, and 20 per cent public sector.

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IV. REGULATORY STRUCTURES AND RELEVANT TRADE RESTRICTIONS

A. CURRENT REGULATORY STRUCTURES

22. Regulation of accountancy involves certain restrictions on entry and professional conduct, and while some restrictions may be a remedy to market failures and may also be based on distributional or paternalistic motives, other restrictions may serve private rather than public interests. With respect to correcting information asymmetries between accountants and their clients, and preventing negative externalities to investors, banks and creditors, regulation of auditor entry and educational requirements is needed, together with more general prohibitions, e.g. on false and misleading advertising.24

23. Although self-regulation can be a useful tool, together with public regulation, there is a risk of rent-seeking behaviour. Overall, regulatory frameworks for accountancy services range from virtually no oversight to self-regulation to multiple regulators. Regulations differ from country to country and even within a country (due to sub-federal jurisdictions). In addition, clients purchasing accountancy services are regulated regarding the types of services they are required to have or can select. Solutions for such cross-border inconsistencies can include the adoption of international standards to improve mobility, as well as mutual recognition (and co-operation) between regulatory bodies.

24. The most common forms of accountancy regulation include quality standards and exclusive rights, quantitative restrictions, advertising restrictions, price regulation, and rules on inter- professional co-operation and business structure. In all EU Member States, for example, statutory audit is an exclusive right of one or more professional groups, but market entry regulation for other financial services differs from country to country. In several EU Members, exclusive rights of accountants are much wider than in others, because services such as non-statutory audits, accounting and bookkeeping, and tax advice and tax representation are exclusive rights of the respective professions.25

25. In the US, all jurisdictions have laws governing the licensing of certified public accountants, including requirements for education, examination and experience. However, while the use of the title “certified public accountant” in each jurisdiction is restricted to individuals registered with the state regulatory authority, the other licensure requirements are not uniform. In addition, under all States’ laws, certified public accountants must make up the majority ownership of all accounting firms, and other owners must be active participants in the firms. The goal of these rules is to limit the potential for conflicts of interest.26

26. The OECD's Indicators of Product Market Regulation Database show significant declines in regulatory restrictiveness in accounting, as in other professional services, between 1996 and 2003 (Annex 6). Between, 2003 and 2008, however, the level of restrictiveness increased slightly, corresponding to the changes in regulation described below. Overall, the Indicators show that levels of restrictiveness for accountancy (and legal services) are higher than for architecture or

24 Competition law may be necessary to control cartel-like behaviour and abuse of market dominance. Nonetheless, the OECD advises that regulation should not extend beyond what is necessary to address the prevailing market failures. (OECD 2009 is the main source for this and the following six paragraphs.) 25 In 2003, responding to a questionnaire sent out by the European Commission, a majority of the national accounting associations argued that appropriate entry requirements and qualifications for statutory auditors should be maintained, but they disagreed on whether qualified professionals should also have exclusive rights to offer non-audit services such as accountancy and tax advice. 26 However, as noted below, prohibiting certain types of business structure also makes entry into the accounting market much more difficult for potential competitors of the "Big 4" accounting networks.

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services.27 The indicators measure entry regulations (licensing, education requirements, and quotas and economic needs tests), and conduct regulations (regulations on the form of business and inter- professional cooperation, advertising, and prices and fees).28

27. Under the Member Body Compliance Program (see below) of the International Federation of Accountants (IFAC) all 159 members and associates are required to assess their regulatory and standard-setting framework, on the basis of an IFAC questionnaire, and to develop action plans to address deficiencies identified in the assessment. Action plans and assessments for all IFAC members and associates are publicly available.29

B. ACCOUNTANCY DISCIPLINES30

28. After several years of discussions, WTO Member governments in 1997 adopted the Guidelines for Mutual Recognition Agreements or Arrangements in the Accountancy Sector,31 (Annex 7) followed by the Disciplines on Domestic Regulation in the Accountancy Sector32 in 1998 (Annex 8).

29. Article VI:4 of the WTO's General Agreement on Trade in Services (GATS) states, "With a view to ensuring that measures relating to qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade in services, the Council for Trade in Services shall, through appropriate bodies it may establish, develop any necessary disciplines. Such disciplines shall aim to ensure that such requirements are, inter alia: (a) based on objective and transparent criteria, such as competence and the ability to supply the service; (b) not more burdensome than necessary to ensure the quality of the service; (c) in the case of licensing procedures, not in themselves a restriction on the supply of the service".

30. The first step in implementing the mandate of GATS Article VI:4 was the ministerial-level Decision on Professional Services, which established of the Working Party on Professional Services (WPPS). Current work takes place in the context of the Working Party on Domestic Regulation (WPDR). With respect to accountancy, the mandate of the WPPS had three parts: 1) the development of disciplines on domestic regulation (in accordance with the requirements of GATS

27 Available online, together with details of the methodology used, at http://www.oecd.org/ dataoecd/25/19/42220487.xls. The OECD, as mentioned in the 1998 Note, conducted a survey of regulations on access to professional services in the OECD area as part of its work in preparation for the Second Workshop on Professional Services which took place in 1996. The Indicators database is described by the OECD as a comprehensive, internationally-comparable set of information about the state of regulation and market structures in OECD countries. 28 The main sources of information used to construct the professional services indicators are the responses of OECD member governments to the Regulatory Indicators Questionnaire (see http://www.oecd .org/document/24/0,3343,en_2649_34833_35858776 _1_1_1_1,00.html). The professional services indicators cover entry and conduct regulation in the legal, accounting, engineering, and architectural professions. In 2008, these indicators were updated and revised; they are now estimated for the years 1998, 2003 and 2008. 29 http://www.ifac.org/ComplianceProgram/. 30 This section is based on Dale Honeck, Developing Regulatory Disciplines in Professional Services: The Role of the World Trade Organization, in Yair Aharoni and Lilach Nachum (editors), "Globalization of Services: Some implications for theory and practice", Routledge Studies in International Business and the World Economy, Routledge 2000, pp. 52-72. 31 WTO document S/L/38, dated 28 May 1997. 32 WTO document S/L/64, dated 17 December 1998.

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Article VI:4); 2) concentration on the use of international standards;33 and 3) the establishment of guidelines for the recognition of qualifications.

31. The MRA Guidelines were released in May 1997. As decided by WTO Members, the Guidelines are voluntary. According to the introduction, "The most common way to achieve recognition has been through bilateral agreements".34 Core elements of the Guidelines, in addition to a reminder of the notification requirements under Article VII of the GATS, are recommendations on the form and content of MRAs. To date, the Guidelines appear to have had little effect in accelerating the low level of accountancy MRAs currently in place.35

32. The Disciplines on Domestic Regulation in the Accountancy Sector, were adopted by the Council for Trade in Services on 14 December 1998. The Accountancy Disciplines are rather concise, comprising twenty-six paragraphs in four pages (six pages with the appendix). They are divided into eight sections, i.e.: Objectives, General Provisions, Transparency (five measures), Licensing Requirements (six measures), Licensing Procedures (five measures), Qualification Requirements (three measures), Qualification Procedures (three measures) and Technical Standards (two measures).

33. The main elements of the Accountancy Disciplines are paragraphs one, two, five, and six. Paragraph one confirms that that Article VI disciplines are separate and distinct from market access and national treatment measures under GATS Articles XVI and XVII, respectively. Paragraph two mandates a "necessity test" for all applicable regulatory measures, i.e. the requirement that regulatory measures shall not be more trade-restrictive than necessary to fulfil a specified legitimate objective.36 In paragraph five, Members are required to explain upon request the specific objectives intended by their accountancy regulations. In paragraph six, WTO Member governments are asked to provide an opportunity for trading partners to comment upon proposed accountancy regulations, and to give consideration to such comments.

34. The Accountancy Disciplines are not yet legally in effect.37 Before the end of the current round of services negotiations, which commenced in January 2000, all the disciplines developed by the WPPS (now the WPDR) are to be integrated into the GATS and will then become legally binding.

33 In regard to international standards, the Singapore Ministerial Declaration of 13 December 1996 included the statement, "We encourage the successful completion of international standards in the accountancy sector by IFAC, IASC and IOSCO." 34 The Guidelines further state (p. 1), "There are differences in education and examination standards, experience requirements, regulatory influence and various other matters, all of which make implementing recognition on a multilateral basis extremely difficult". It is interesting to note that the Decision on Professional Services actually refers to the establishment of guidelines for the recognition of qualifications in respect to GATS Article VI:6, and not specifically to the development of guidelines for MRAs (Article VI:6 states "In sectors where specific commitments regarding professional services are undertaken, each Member shall provide for adequate procedures to verify the competence of professionals of any other Member".) . 35 Nonetheless, it might be argued they helped to focus greater attention, at both the government and industry levels, on the issue of creating MRAs as a means of facilitating trade in professional services. 36 Examples of such legitimate objectives mentioned in the disciplines are the protection of consumers (including all users of accounting services and the public generally), the quality of the service, professional competence and the integrity of the profession. 37 The Decision of the Council for Trade in Services adopting the Accountancy Disciplines (WTO document S/L/63, 15 December 1998) is composed of three elements. First is a statement that the disciplines have been adopted by the Council, and that they are applicable to Members who have scheduled specific commitments on accountancy. The second element states that Members will continue their work on domestic regulation, aiming to develop general disciplines for professional services while retaining the possibility to develop additional sectoral disciplines. The final element is a 'standstill provision', effective immediately, under which all WTO Members, including those without GATS commitments in the accountancy sector, have agreed, consistent with their existing legislation, not to take new measures which would be in violation of the accountancy disciplines.

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WTO Members subsequently embarked upon a major expansion of their efforts to develop regulatory disciplines under Article VI:4. The 1999 Decision on Domestic Regulation38 replaced the WPPS with a new Working Party on Domestic Regulation (WPDR). The WPDR is mandated to develop generally applicable disciplines, and may develop disciplines as appropriate for individual sectors or groups of sectors, including professional services.

C. RESTORING PUBLIC CONFIDENCE

35. A 2003 report by the International Federation of Accountants (IFAC), titled Rebuilding Public Confidence In Financial Reporting: An International Perspective, noted that the 1980s and 1990s were littered with examples of reporting failures, generally associated with governance and business failures, and that the East Asian financial crisis in the second half of 1997 also raised questions about the reliability of financial statements and the role of the large international accounting firms. As the report stated, however, "The collapse of Enron {Box 2} and the related auditor issues are seen by many as the event that initiated the changed perception of the reliability of financial reporting. The larger, but much simpler, reporting failures at WorldCom and issues raised at Global Crossing, Tyco, Adelphia, and Xerox added further examples, reinforcing the perception that financial reporting was not to be relied upon".39

36. Among the observations in the IFAC report was that a company with securities listed in more than one country would be subject both to the rules in its home country and those in the other countries in which it was listed. The presence in the market of sets of information that are different, but each of which purported to be a fair presentation, undermined the credibility of each set. It increased the inefficiency of the market as well as added unnecessary costs. The alternative, the report stated, was to agree on a “neutral” set of standards which could be accepted by every country, and either adopted as the country’s standards or incorporated into them.

37. The main findings in the IFAC report are the following: 1. Effective corporate ethics codes need to be in place and actively monitored; 2. Corporate management must place greater emphasis on the effectiveness of financial management and controls; 3. Incentives to misstate financial information need to be reduced; 4. Boards of directors need to improve their oversight of management; 5. The threats to auditor independence need to receive greater attention in corporate governance processes and by auditors themselves; 6. Audit effectiveness needs to be raised primarily through greater attention to audit quality control processes; 7. Codes of conduct need to be put in place for other participants in the financial reporting process, and their compliance should be monitored; 8. Audit standards and regulation need to be strengthened; 9. Accounting and reporting practices need to be strengthened; and 10. The standard of regulation of issuers needs to be raised.

38 The Decision was adopted by the Council for Trade in Services on 26 April 1999 (WTO document S/L/70). Two Secretariat papers were also prepared: Article VI:4 of the GATS: Disciplines on Domestic Regulation applicable to all Services (S/C/W/96) and International Regulatory Initiatives In Services (S/C/W/97), both dated 1 March 1999. 39 IFAC 2003, Rebuilding Public Confidence In Financial Reporting: An International Perspective, p. 7.

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Box 2: CASE STUDY: ENRON

As noted in the 2003 report by the International Federation of Accountants (IFAC), titled Rebuilding Public Confidence In Financial Reporting: An International Perspective (see paragraph 35 above):

"Enron provides a good example of the involvement of the many market participants and of many of the weaknesses that are now recognized as systemic. Underlying the collapse were a number of poor business decisions, some commercial misfortune and some personal fraudulent behavior, but many other factors combined to worsen the problem. The interests of the senior executives were supposed to be aligned with that of shareholders through share options. The use of “special purpose entities” shifted both losses and debts off the company’s financial statements. In theory, many safeguards were in place to prevent managers from boosting the share price through questionable accounting. The board and the audit committee appeared better qualified than most, but several members faced financial conflicts.

The accounting followed now looks unacceptable, but most of it was in line with accepted US standards and practices. The auditors had extensive experience with the company, but may have been too close to management as a result of the large number of former audit firm employees at the client. The provision of non- audit services gave a perception of a lack of independence. The engagement team also appears to have overridden advice from the firm’s technical department.

Where were the regulators and the other market participants? The special purpose entities may not have been consolidated, but there was significant disclosure in the financial statements which might have raised questions as to the appropriateness of the accounting. However, the regulator was resource constrained and had not performed a recent review of the statements. The rating agencies did not probe deeply enough. Analysts at the investment banks appear to have been pressured by other parts of their organizations with the result that they were advising clients to buy Enron stock until the moment the firm collapsed. The investment banks profited handsomely over the years from serving Enron and the markets it created, including helping to establish the special purpose entities. Lawyers earned high fees from giving opinions that supported what is now seen as inappropriate accounting. The media were not critical until it was too late.

This one example demonstrates for all the participants how their roles impact the financial reporting process and many of the significant weaknesses that can undermine it."

(Source: IFAC, Rebuilding Public Confidence In Financial Reporting: An International Perspective, 2003, p. 11.)

D. ROSC INITIATIVE

38. In the aftermath of the international financial crisis of the 1990s, the World Bank and the International Monetary Fund (IMF) in 1999 initiated the joint Reports on the Observance of Standards and Codes (ROSC) initiative, covering 12 sets of internationally recognized core standards and codes relevant to economic stability and private and financial sector development.40 Under this approach, the IMF took the lead in preparing assessments in the areas of data dissemination and fiscal transparency. Modules for the financial sector are mostly derived from the Financial Sector

40 The twelve sets of standards cover data dissemination, fiscal transparency, transparency in monetary and financial policies, banking supervision, securities market regulation, insurance supervision, payments and settlements, anti-money laundering and the combating of financing of terrorism, corporate governance, accounting and auditing, and insolvency and creditor rights. (World Bank 2004, Implementation of International Accounting and Auditing Standards: Lessons Learned from the World Bank’s Accounting and Auditing ROSC Program, September 2004.)

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Assessment Program (FSAP).41 The World Bank took the lead in corporate governance, accounting and auditing, and insolvency regimes and creditor rights. As noted by the OECD:

"In particular, a sound and efficient financial system relies heavily on the various elements that contribute to a robust financial reporting and auditing framework. Accounting standards and a high-quality audit profession are called upon to ensure the quality of regulatory reports and public disclosures, and thus have been included among the twelve standards identified by the Financial Stability Forum as conducive to a robust financial infrastructure."42

39. The ROSC and the FSAP programmes are tools to assess financial sector vulnerability and development needs. They provide input to the IMF for its surveillance activities and are useful instruments to support the policy dialogue of international financial institutions, policymakers, and the private sector. They can contribute to the design of development lending operations, assist in the preparation of key policy documents, and provide benchmarks for the design and monitoring of technical assistance and capacity-building programs. To remain useful, assessments of progress in the implementation of standards are updated periodically.

40. Objectives of the ROSC programme include analyzing comparability of national accounting and auditing standards with international standards, to determine the degree to which applicable accounting and auditing standards are followed, and assessing the strengths and weaknesses of the institutional framework in supporting high-quality financial reporting. Another major aspect of the ROSC initiative is to assist countries in developing and implementing an action plan for improving institutional capacity, with the aim of strengthening the corporate financial reporting regime.

41. The IMF and the World Bank have set up websites to disseminate the final ROSC assessments to the public.43

E. SARBANES-OXLEY ACT

42. In July 2002, the Sarbanes-Oxley Act (SOX) was enacted in the US as a reaction to the many corporate and accounting scandals. SOX significantly revised the oversight and regulation of the US accounting profession, most notably by strengthening corporate governance requirements and improving transparency and accountability.44

43. SOX required the US Securities and Exchange Commission (SEC) to implement a number of new rules, including independence rules, to address areas such as prohibited non-audit services, audit partner rotation, and conflicts of interest.45 SOX also established the Accounting Oversight Board (PCAOB) to oversee the audit of public companies. Although SOX rules are

41 The FSAP was a joint IMF/World Bank effort introduced in May 1999, aimed at increasing the effectiveness of efforts to promote the soundness of financial systems in member countries (see http://www1.worldbank.org/finance/html/fsap.html). 42 OECD 2009, op. cit., p. 12 (see also footnote 40). The Financial Stability Forum (now Board), created by the G7 in the wake of the Asian financial crisis, was convened in April 1999 to promote international financial stability through information exchange and international co-operation in financial supervision and surveillance. It brings together senior representatives of national financial authorities (e.g. central banks, supervisory authorities and treasury departments), international financial institutions, international regulatory and supervisory groupings, committees of central bank experts and the European Central Bank (see http://www.fsforum.org). 43 The ROSC website, including details of the 12 core standards and country modules, is available at http://www.worldbank.org/ifa/rosc.html. 44 This and the following two paragraphs are based on OECD 2009, op. cit., p. 34. 45 As noted above, most Big 4 firms have divested their consultancy services.

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considered necessary and important, they might limit the number of accounting firm choices in case a large public company wanted to switch auditors.46

44. With respect to multi-disciplinary practices (MDPs),47 SOX to some extent limited 48 possibilities for conflicts of interest, as did the 2006 Directive on Statutory Audits in the EU. In some countries there are prohibitions on MDPs which are composed of accountants and other professionals such as lawyers. Among the potential conflicts of interests could be the obligation of lawyers to protect client interests, which may conflict with the transparency requirements for accountancy.

F. EFFECTS OF THE CURRENT CRISIS

45. In connection with the current global economic and financial crisis, as noted in a recent UNCTAD report, accounting and reporting issues have gained unprecedented attention at the highest levels of government as one of the pillars of global financial stability.49 The crisis further highlighted the need for strengthening of the institutional framework and governance of global accounting standard-setting, and improving the quality of international financial reporting, and added impetus to the national and international debates on the implementation of International Financial Reporting Standards (IFRS), which are described below.

46. Among the key actors that have devoted significant attention to the role of accounting and reporting in the context of the financial crisis are the 2008 and 2009 Summits of the Group of Twenty (G-20), the June 2009 meeting of the G-8 Finance Ministers, the European Council of Ministers; the United States Congress, and the Financial Crisis Advisory Group (which was established by the International Accounting Standards Board (IASB) and the Standards Board (FASB) of the United States).

47. The G-20, in its declaration of April 2009, stated that accounting standard-setters should take action by the end of 2009 to: (a) reduce the complexity of accounting standards for financial instruments; (b) strengthen accounting recognition of loan-loss provisions by incorporating a broader range of credit information; (c) improve accounting standards for provisioning, off- exposures and valuation uncertainty; (d) achieve clarity and consistency in the application of valuation standards, internationally, working with supervisors; (e) make significant progress towards a single set of high quality global accounting standards; and (f) within the framework of the independent accounting standard-setting process, improve the involvement of stakeholders, including

46 The 2003 IFAC report noted, "The main area of current or immediate conflict arises from the implementation of the US Sarbanes-Oxley Act and, particularly, its extraterritorial impact. Issues arising from the need for a company to comply with the new US governance regime, in addition to that in their home country, are a potential source of conflict; it is too early to know whether this will be serious or just aggravating and costly. The situation regarding the registration and oversight of accounting firms by the US Public Company Accounting Oversight Board (PCAOB) may be more serious. Each national practice of an accounting firm, that either audits a company which is an SEC registrant or audits a significant subsidiary of an SEC registrant, is subject to the PCAOB’s authority, including its monitoring process." (IFAC 2003, op. cit., p. 20). 47 The OECD observes that accounting firms themselves can already be considered as multi- professional firms, where conflicts of interest could potentially arise, especially when auditing services are combined with other accountancy and consulting services. 48 Directive 2006/43/EC on Statutory Audits of Annual and Consolidated Accounts (the Eighth Company Law Directive). The Directive includes rules on ownership, independent public oversight, provision of non-audit services, contingent audit fees (prohibited), and rotation of key audit partners for audits of public interest entities. 49 This and the following two paragraphs are based on UNCTAD 2009, Review of practical implementation issues of International Financial Reporting Standards: Impact of the financial crisis, TD/B/C.II/ISAR/53, 20 August 2009, p. 1.

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prudential regulators and emerging markets, through IASB’s constitutional review. The Progress Report on the Actions to Promote Financial Regulatory Reform,50 issued at the September 2009 G-20 summit, lists the achievements to date (Annex 9).

G. INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

48. The OECD notes that International Financial Reporting Standards (IFRS) are clearly becoming global accounting standards.51 They are now firmly established in Europe, Australasia and Turkey, and are set to be adopted in Canada, Japan, South Korea and other jurisdictions by 2011. The US is reducing the differences between the US Generally Accepted Accounting Principles (GAAP) and IFRS, with the expectation of reaching convergence by 2011. Since 2001, almost 120 countries have required of permitted the use of IFRS.52

49. The current economic and financial crisis has added additional issues to the already wide- ranging debates on the implementation of IFRS, especially those related to financial reporting in a distressed economic situation.53 They include such challenges as measurement in illiquid markets, the pro-cyclicality of IFRS54, provisioning aspects, and risk management and related disclosures and audit considerations. One of most important new issues is how to ensure that the financial reporting system not only provides a fair and objective reflection of company’s financial status and performance, but also provides early warning signals which can help to avert major financial disasters. The new issues are particularly challenging for those countries with less developed financial markets and accountancy infrastructure.

50. The use of high-quality accounting standards and practices are vital for the well-functioning of markets, for example in evaluating public company performance.55 Global accounting standards, i.e. IFRS and International Standards on Auditing (ISA) enhance transparency, while also reducing costs. As previously noted, however, current standards are said to need revision, particularly in dealing with off-balance sheet vehicles.56

51. Accountancy standards can: ameliorate information and transaction costs, by creating a more uniform accounting system; internalize negative externalities, by setting minimum quality standards for accounting services; and increase the reliability and independence of statutory audits.57 However, the benefits of accounting standards depend on their actual content, and their application in practice.58

50 Available online, at http://www.g20.org/Documents/pittsburgh_progress_report_250909.pdf. 51 OECD, 2009, op. cit., p. 41. 52 Http://www.iasb.org/Use+around+the+world/Global+convergence/IFRS+global+convergence.htm. 53 For example, as UNCTAD states, "the financial crisis has highlighted tensions between the need for expediency in stabilizing economies, and the need for due process in creating a single high-quality international standard" (UNCTAD 2009, op. cit., p. 4). Established issues already include the complexity of accounting standards; the need for additional guidance on practical implementation (e.g. valuation of financial instruments); suitability of international accounting standards for small and medium-sized enterprises; and technical matters such as measurement). 54 Pro-cyclicality in the event of a financial crisis results from the "mark to market" (fair-value) requirement to value financial instruments at current market prices. See, for example, Rachel Sanderson, Don't Waste Chance of a Wider Debate on Fair Value, Financial Times, 27 May, 2010. 55 OECD 2009, op. cit., p. 9. 56 As stated by the OECD, "the sub-prime mortgage crisis and the credit crunch have reinforced the importance of both a more uniform and (much) more reliable accounting system, especially when taking into account the fact that off-balance sheet vehicles have played a key role in promoting the financial crisis." (OECD 2009, op. cit., pp. 39-40). 57 The OECD notes that use of a single, universally understood accounting standard represents a step forward for transparency, not only by making it easier for investors to compare companies’ performance regardless of their regulatory jurisdiction, but hopefully also by making it easier to ‘tighten’ the accounting

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H. INTERNATIONAL STANDARDS ON AUDITING (ISA)

52. Over 100 countries are either using International Standards on Auditing (ISA), or are in the process of adopting or incorporating them into national auditing standards, or using them as a basis for preparing national auditing standards (Table 5).59 ISA are intended for use in all audits — publicly traded companies, private business of all sizes and government entities at all levels.

53. ISA are issued by the International Auditing and Assurance Standards Board (IAASB), which is a standard-setting body operating independently under the auspices of IFAC. The IAASB’s goals include the setting of high quality auditing, assurance, quality control and related services standards, and to facilitate the convergence of international and national standards, thereby enhancing the quality and uniformity of practice throughout the world and strengthening public confidence in the global auditing and assurance profession.

54. A report on ISA, titled Challenges And Successes In Implementing International Standards: Achieving Convergence To IFRSs And ISAs, is available on the IFAC website. The report emphasizes that high-quality standards of financial reporting, auditing, and ethics underpin the trust that investors place in financial and non-financial information.60

Table 5: Basis of ISA Adoption by Jurisdiction, 2009 Type of Adoption Number of countries/jurisdictions Required by Law or Regulation 11 ISAs are adopted 32 National Standards are the ISAs 29 Other 54 TOTAL (Countries and Jurisdictions) 126 Notes: - Required by Law or Regulation – Country law or regulation requires the use of ISAs as issued by the International Auditing and Assurances Standards Board (IAASB) in the auditing of general purpose financial statements. - ISA are Adopted – A national standard-setter has adopted ISAs as the audit standards to be used in the country (there are no separate local auditing standards). - National Standards are the ISAs – While ISAs have generally been adopted as the local standards, there may be national modifications to them but changes, if any, are stated to be in line with the spirit of IAASB Modifications Policy. - Other – Refer to specific notes. Source: IFAC (http://web.ifac.org/download/basis-of-isa-adoption.pdf.)

I. IASB

55. The International Accounting Standards Board (IASB) is an independent standard-setting body.61 Its (currently) 15 full-time members are responsible for the development and publication of International Financial Reporting Standards (IFRS), including the IFRS for SMEs, as well as for approving the Interpretations of IFRS developed by the International Financial Reporting standards and their world-wide application, limiting the potentially adverse effects of excessive risk-taking and off-balance sheet accounting. In addition, it reduces costs for multinationals that must now prepare multiple books and facilitates greater mobility of auditors, which in turn might help reduce market concentration as firms will have access to a wider pool of talent and a greater volume of resources (OECD 2009, op. cit., p. 41). 58 As emphasized by the OECD, “distinctions between on-balance sheet and off-balance sheet positions of banks and other financial institutions should be abolished or at least reduced to a bare minimum. One suspects that regulatory acceptance of such distinctions until now may have had more to do with political lobbying and regulatory capture than with any substantive argument about differences in risk exposure” (OECD 2009, op. cit., pp. 40-41). 59 http://www.ifac.org/IAASB/. IFAC notes that the EU is currently considering a process and timetable for endorsement of ISAs. 60 http://www.ifac.org/Members/Source_Files/Other_Publications/Wong_Report_Final.pdf (p. 2). 61 http://www.iasb.org/The+organisation/IASCF+and+IASB.htm).

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Interpretations Committee (IFRIC).62 The IASB consults with relevant stakeholders, including investors, analysts, regulators, business leaders, accounting standard-setters and the accountancy profession.

56. The IASB has initiated several projects in response to the financial crisis, most notably those regarding fair value measurement and financial instruments. In October 2008, the IASB revised requirements on the reclassification of certain financial assets from fair value categories to amortized cost categories. The IASB also issued additional technical guidance on determination of the fair values of financial assets in illiquid or inactive markets.63 That guidance was reinforced by the May 2009 exposure draft on Fair Value Measurement. The IASB project on financial instruments has three phases: classification and measurement; impairment; and hedge accounting and others.64

57. The IASB and the US Financial Accounting Standards Board (FASB), at the end of 2008, established the Financial Crisis Advisory Group, which was asked to advise both IASB and FASB on implications of the financial crisis for standards-setting, and potential changes in the regulatory environment. In July 2009 the advisory group concluded that the financial crisis highlighted the importance of four principles: effective financial reporting; limitations of financial reporting; convergence of accounting standards; and standard setter independence and accountability.65 The group also asked what role accounting and audit could play in providing early warning signals regarding potentially dangerous financial practices.

J. IFAC

58. The International Federation of Accountants (IFAC), through its independent standard-setting boards, develops international standards on ethics, auditing and assurance, education, and public sector accounting standards. It also issues guidance to support professional accountants in business, small and medium practices, and developing nations.66

59. As noted above, IFAC established a Member Body Compliance Program as a means to evaluate the quality of members' and associates' efforts to meet IFAC membership requirements.67 The program's primary objective is stated as encouragement and improvement. A Compliance Advisory Panel oversees the implementation and operation of the IFAC Compliance Program, and the Compliance Program is itself overseen by IFAC's Public Interest Oversight Board (PIOB). IFAC states that the objective of the PIOB is to increase the confidence of investors and others that IFAC's

62 Meetings of the IASB are held in public and webcast, and consultative documents are published for public comment. 63 The guidance explained the need to consider all relevant market information, and acknowledged that, in some circumstances, an entity may have to use its own assumptions about future cash flows and risk-adjusted discount rates. (This and the following paragraph are based on UNCTAD 2009, op. cit., pp. 6-7. 64 The IASB is proposing two measurement methods (amortized cost and fair value) to be used depending on the circumstances. Amortized cost would be used only when assets have basic features of a loan and are managed on a contractual yield basis. All other financial instruments are to be measured on fair value basis with the fair value option available in case of mismatches between assets and liabilities. 65 During the advisory group’s debates a number of specific accounting issues were raised: valuation and measurement in illiquid markets (particularly of financial instruments); pro-cyclicality of accounting standards; provisioning, risk management and disclosures; and reconciliation between financial reporting and prudential regulations. The advisory group made a number of recommendations in each of these areas. 66 http://www.ifac.org/About/. 67 The Statements of Membership Obligations (SMOs) are issued by the IFAC Board and establish requirements for members and associates to promote, incorporate, and assist in implementing international standards issued by IFAC and the International Accounting Standards Board. The SMOs also establish requirements for quality assurance and investigation and discipline activities.

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public interest activities are properly responsive to the public interest.68 The PIOB oversees IFAC's Public Interest Activity Committees.69

60. IFAC's International Ethics Standards Board for Accountants (IESBA) develops ethical standards and guidance, and encourages its member bodies to adopt high standards of ethics for their members and promote good ethical practices globally. The Board's website includes the Code of Ethics for Professional Accountants (Code) issued by the IESBA, and resources developed to assist in the adoption and implementation of the Code.70

61. The Developing Nations Committee of IFAC71 provides guidance and other resources to meet the needs of the accountancy profession, and seeks development assistance from the donor community for the strengthening of the accountancy profession in developing nations. Their website includes guidance and guidelines to assist professional accountancy organizations in developing capacity and in developing collaborative and mentoring relationships between professional accountancy organizations.72

K. PROMOTING COMPETITION

62. Although often necessary to ensure quality, regulations may also have the unintended effects of restricting economic competition and limiting transparency. Some regulations may actually be inappropriate, and a better balance may need to be struck between the interests served by regulation and the need to ensure competition. Nonetheless, "the need for ethical standards or codes of behaviour, and the desirability of high standards of professional competence to ensure integrity and public confidence, are unquestionable. But the two objectives of promoting competition and maintaining professional standards are not necessarily contradictory."73

63. Quantitative restrictions to entry, advertising bans and price regulation (including recommended fee scales) typically restrict competition more than is necessary and should be eliminated. In addition, jurisdictions that give accountancy professionals exclusive rights for tax advice and representation might wish to consider whether they are truly necessary, given that many others do not have such restrictions.74

64. With respect to the "Big 4", the OECD observes that, "promoting entry or expansion of new accounting networks into the auditing and accounting services market for quoted and large companies can be beneficial for competition, but will be very difficult to achieve. Most of the large publicly listed companies appear to be unwilling to switch to a non-Big Four auditor, even though some of the

68 http://www.ipiob.org/. The PIOB comprises individuals from a number of professions and all branches of regulation. Its ten members were nominated by the International Organization of Securities Commissions, the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors, the World Bank and the European Commission. 69 These are the International Auditing and Assurance Standards Board (IAASB), the International Accounting Education Standards Board (IAESB), the International Ethics Standards Board for Accountants (IESBA), and the Compliance Advisory Panel. The PIOB also oversees the respective Consultative Advisory Groups of the IAASB, IAESB and IESBA. 70 http://www.ifac.org/Ethics/. 71 http://www.ifac.org/DevelopingNations/. 72 Including such publicly available publications as Establishing and Developing a Professional Accountancy Body (http://web.ifac.org/publications/developing-nations-committee/good-practice-guidance-20# establishing-and-developin). 73 OECD 1999, op. cit., p. 17. Another OECD paper, OECD Policy Roundtable, Trade Associations 2007, also addresses competition issues involving accounting services (available online, at http://www.oecd.org/ dataoecd/40/28/41646059.pdf). 74 This and the following two paragraphs are based on OECD 2009, op. cit.

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accounting firms at the intermediate level have become quite substantial and have already formed international networks"75 (Box 3). Following the presumption that promoting competition is beneficial, the expansion of existing intermediate networks could be encouraged. Mergers proposals between small or intermediate accounting firms should be welcomed by competition authorities, as such they could put competitive pressure on the "Big 4".

65. Promoting the entry of new international accountancy networks could also be encouraged by allowing partnerships and unlimited liability joint stock companies (with restrictions that reduce conflicts of interest) in countries where this is not yet allowed. Research has shown that alternative ownership and management structures, where the control over the audit firms is with external investors (not being auditors) is unlikely to significantly impair auditor independence in practice. Provisions such as Article 3 of the 2006 EU Statutory Audit Directive, which liberalised ownership restrictions over EU audit firms (making it possible for local audit firms to be controlled only by a majority of auditors), are considered to be supportive of such initiatives.

Box 3. Large, Non-Big Four Accounting Firms: BDO International and Grant Thornton

"There are at least two, and probably more, accounting networks that could potentially be increased in size to challenge the Big Four. For example, the fifth largest accounting network in the world, BDO International, is co-ordinated by BDO Global Coordination BV, incorporated in the Netherlands and with an office in Belgium. All of its member firms are again independent legal entities in their own countries (for example, BDO CampsObers in the Netherlands, BDO Seidman in the US, BDO Stoy Hayward in the UK, and BDO Kendalls in Australia). The network was founded in Europe in 1963, when accounting firms from the UK, Netherlands, Germany, US and Canada combined their knowledge base to form the Binder Seidman International Group. At 30 September 2008, BDO was active in 110 countries, employing 44,000 people. On its website, the fee income for 2008 is mentioned, which was US$5.15 billion. BDO calls itself “the leading challenger to the largest global accounting networks”. In the Netherlands, BDO is the market leader for businesses in the SME sector.

Another large accounting network is Grant Thornton International, which is active in over 100 countries. The organisation presents itself as “one of the world's leading organisations of independently owned and managed accounting and consulting firms providing assurance, tax and specialist advisory services to privately held businesses and public interest entities”. That is, all of its member firms are separate national entities, governing themselves and also managing their administrative matters independently. The UK is one of the countries where Grant Thornton is particularly strong. On 1 July, 2007 Grant Thornton UK LLP merged with RSM Robson Rhodes, in a bid to become the UK’s fifth-largest accounting and business advisory firm. Also in Japan, Grant Thornton is (according to information presented on its own website) one of the leading audit, accounting, tax and business advisory firms serving the needs of public interest entities and privately held businesses. In the Netherlands, however, Grant Thornton presents itself as “a medium-sized accountancy and advice organisation”, offering “a full range of services for [privately held businesses], medium-sized and small companies as well as specialist services for larger nationally and internationally active enterprises”."

(Source: OECD, Policy Roundtables, Competition and Regulation in Auditing and Related Professions, 2009, p. 15.)

75 OECD 2009, op. cit., p. 22. See also Bernard Ascher and Albert A. Foer, Financial Reform and the Big 4 Audit Firms, American Antitrust Institute Working Paper No. 10-01, January 2010 (available online, at http://www.antitrustinstitute.org/archives/files/ AAI%20Working%20Paper%2010-01_010720101109.pdf).

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V. NEGOTIATIONS ON ACCOUNTANCY SERVICES AND EXISTING COMMITMENTS UNDER THE GATS76

66. To date, as a result of the Uruguay Round and subsequent accessions, 77 WTO Members have made commitments in accountancy services.77 Among the professional services as a whole (Annex 10), only engineering services, at 78 Members, has a higher number of GATS commitments than accountancy. With respect to taxation services, 53 Members have made commitments.

67. Although 77 Members have made commitments in accountancy, only 59 made commitments in all three major sub-categories (Annex 11). Five Members did not take commitments in accounting, six did not do so in auditing, and 15 declined to take commitments in bookkeeping services. It is noteworthy that all 21 of the new Members (indicated in bold in the Table) made commitments in all three sub-categories.

68. Of the 77 Members, 70 referred to CPC classifications in their schedule. In certain cases, however, the use of CPC classifications appears to be unclear. For example, in some cases a Member has listed only "accounting" (or "auditing") in its schedule, while indicating in parentheses the general CPC category (i.e. 862), which covers accounting, auditing and bookkeeping services. Another Member has listed "accounting and bookkeeping services" while also using the CPC 862 category in parentheses.

69. With regard to the level of commitments, in market access, full commitments for the supply of services through commercial presence (mode 3) were made by 29 per cent of the Members who scheduled accountancy services (Annex 12).78 This declines to 14 per cent when horizontally applicable limitations are taken into account. For cross-border supply and consumption abroad (modes 1 and 2), the changes are less dramatic, from 42 to 38 per cent, and from 53 to 48 per cent, respectively.79 For the presence of natural persons (mode 4), which is obviously very important for professional services, all Members have inscribed severe limitations.80

70. As shown in Annex 12, only partial market access and national treatment are typically granted in respect to accountancy. In the case of commercial presence, the most common restrictions appearing in Members' schedules are limitations on the type of legal entity permitted, e.g. only partnerships or sole proprietorships may be allowed; limitations on participation; economic needs tests; and restrictions (or even prohibitions) on the use of foreign company names.81 Mode 4 restrictions specifically listed under accountancy typically include residency and qualification requirements. In some cases, a number of years of experience in the country concerned is also mandated.

76 The following analysis of existing commitments under the GATS is based on information generated by the electronic database developed in the Secretariat. 77 The schedules of the 15 most recent EC Members are counted separately, as they have not yet been formally integrated into the GATS schedule of the European Communities and its Member States. Aruba, the Netherlands Antilles and New Caledonia also have schedules, but are not counted separately. 78 Such a broad categorization of commitments is necessarily very crude and is intended only to provide a rough indication. In practice, the economic impact of a "partial" commitment could be close to that of a full commitment if the limitation maintained is minimal; on the contrary, it could be effectively close to "unbound" if the limitations are very broad and restrictive. 79 It must be noted, however, that accountancy services purchased abroad might not be accepted for satisfying domestic accountancy requirements. 80 See Presence of Natural Persons (Mode 4), Background Note by the Secretariat, WTO document S/C/W/301, 15 September 2009. 81 It should be noted that such evaluation is not always straightforward, as a single measure may have restrictive effects in several ways, or may not be easily classified due to its ambiguity or a large room for discretion.

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71. In many cases, the qualification requirements and requirements for residency or even citizenship listed in schedules affect multiple modes of supply. For example, under modes 1, 3, and 4, a Member has placed a horizontal market access restriction, for professional services as a whole, that persons seeking to provide professional services must obtain recognition of their professional degree, enrol in the relevant college and establish legal domicile. In the case of auditing services, citizenship requirements are fairly common in Member schedules, despite the recent trend to remove them from national legislation.

72. Seven WTO Members have taken MFN exemptions which directly specify either accountancy services or professional services in general.82 These MFN exemptions all involve reciprocity provisions for the exercise of professional activities. Additionally, a number of Members have taken general MFN exemptions which may have an effect on the accountancy sector, most notably preferential access measures for natural persons.

73. In the context of the current GATS negotiations under the Doha Development Agenda, an Information Note addressing accountancy services was prepared by the Secretariat at the request of Members. Its aim is to assist delegations and capital-based officials in their assessment and consideration of sector- and mode-specific issues raised in the negotiations.83

VI. CONCLUSIONS

"we certainly need more publicly available and accessible knowledge of the workings of international audit practice, the regulatory networks, the forces driving global regulatory policy and its impact at the level of practice."

74. There is an evident mismatch between the national -- and even sub-national -- regulatory structures for accountancy firms (including the "Big 4" firms), and the global nature of their biggest multinational clients. This mismatch is accentuated by differences in national definitions and regulatory requirements, leading to the unavailability of international statistics and the lack of compatible financial documentation.84 More recently, concerns have been expressed regarding domestic regulatory barriers to trade in accountancy services which have (usually unintentionally) been created as part of national regulatory reforms.

75. Although the WTO Council for Trade in Services adopted Disciplines on Domestic Regulation in the Accountancy Sector on 14 December 1998, they are not yet legally in effect, pending the outcome of the current negotiations under the Doha Development Agenda. Consequently, their effect to date has apparently been minimal.

76. While Enron-scale deficiencies in accountancy practices have not emerged as major factors in the current global economic and financial crisis, neither is it obvious that previously identified

82 The countries are Costa Rica, Dominican Republic, Honduras, Jordan, Panama, Thailand, and Turkey (Venezuela's MFN exemption for professional services does not appear to include accountancy). 83 Other Professional Services, Information Note by the Secretariat, WTO document JOB(05)/206, 21 September 2005. 84 As noted in a recent article "we certainly need more publicly available and accessible knowledge of the workings of international audit practice, the regulatory networks, the forces driving global regulatory policy and its impact at the level of practice." (Christopher Humphrey, Anne Loft, and Margaret Woods, The global audit profession and the international financial architecture: Understanding regulatory relationships at a time of financial crisis, Accounting, Organizations and Society, 34 (2009) p. 823).

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deficiencies have been fully remedied.85 Accounting standards and regulations have subsequently become the subject of renewed attention in the G-20 and other international fora.

77. Substantial progress has been made since the previous Secretariat Note in the formulation and adoption of both International Financial Reporting Standards (IFRS) and International Standards on Auditing (ISA). Nonetheless, the G-20 and others have called for a redoubling of efforts to achieve full convergence.

78. The need to ensure competition has led to concern over preventing the demise of a "Big 4" firm in the event of a future accounting scandal, as well as interest in encouraging the expansion of mid-size firms to compete in the supply of auditing services to multinationals. Relevant issues include possible liability caps, as well as changes to current limitations on firm ownership.

VII. SOURCES OF ADDITIONAL INFORMATION

79. Relevant sources of additional information also include the following Internet sites:

- Association of Accountancy Bodies of West Africa (ABWA) (http://www.abwa- online.org/)

- BDO International (http://www.bdointernational.com)

- Confederation of Asian and Pacific Accountants (CAPA) (http://www.capa.com.my)

- Deloitte Touche Tohmatsu (http://www.deloitte.com/)

- Eastern Central and Southern African Federation of Accountants (ECSAFA) (http://www.accaglobal.com/ecsafa/)

- Eurasian Council of Certified Accountants and Auditors (ECCAA) (http://www.eccaa.org/)

- Ernst & Young (http://www.ey.com/)

- Fédération des Experts Comptables Européens (FEE) (http://www.fee.be)

- Grant Thornton International (http://www.gti.org/)

- Institute of Chartered Accountants of the Caribbean (ICAC) (http://www.icac.org.jm/)

- Interamerican Accounting Association (IAA) (http://www.contadoresaic.org)

- Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) (http://www.unctad.org/Templates/Startpage.asp?intItemID=2531)

- International Federation of Accountants (IFAC) (http://www.ifac.org) (Compliance program responses and action plans: http://www.ifac.org/ComplianceAssessment/ published.php)

85 As noted by the OECD, "Perhaps the most fundamental conflict with audits is that accountants are required to provide an independent opinion that may at times not be in the interest of the client who pays them. Finding solutions that enhance independence is of crucial importance for those who rely on audits, such as investors." (OECD, op.cit., p. 11).

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- International Accounting Standards Board (IASB) (http://www.iasbc.org/)

- International Organization of Securities Commissions (IOSCO) (http://www.iosco.org)

- KPMG International (http://www.kpmg.com)

- South Asian Federation of Accountants (SAFA) (http://www.esafa.org/)

- PricewaterhouseCoopers (http://www.pwc.com)

- Reports on the Observance of Standards and Codes (ROSC) (http://www.worldbank.org/ifa/rosc.html)

- The Accountant (http://www.vrl-financial-news.com/accounting/the-accountant.aspx)

______

ANNEXES

Annex 1: Exports of accounting, auditing, book-keeping and tax consulting services (Balance of Payments basis) US$ Million Value Annual Growth (%) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2006-08 2007 2008 1 Albania ...... 0.3 14.7 0.1 0.6 0.4 10.8 -4 -33 ... 2 Armenia ... 0.0 0.2 0.2 0.6 0.8 1.1 1.6 1.5 12 45 -6 3 Austria ...... 65.8 70.9 65.2 79.4 92.3 4 22 16 4 Azerbaijan ...... 0.5 1.6 1.1 ... 220 -31 5 Bangladesh ...... 0.6 0.4 0.5 0.9 1.0 1.0 0.9 8 0 -10 6 Belgium ...... 328.5 307.6 ...... -6 7 Belarus ...... 0.6 1.0 ... 2.4 3.2 23 ... 33 8 Bulgaria ...... 4.3 10.9 12.8 18.7 33.8 29 46 81 9 Burkina Faso 2.7 4.1 ...... 10 Cyprus ...... 202.9 235.8 271.1 281.8 356.2 475.4 294.8 1 33 -38 11 Czech Rep. ... 3.0 10.2 4.7 21.1 120.8 171.8 203.9 315.2 40 19 55 12 Denmark ...... 87.3 146.6 172.5 233.9 ... 18 36 13 Estonia ...... 2.7 4.4 5.1 5.5 9.4 16.3 18 71 73 14 Finland ...... 33.7 67.6 63.9 82.3 44.3 60.8 82.5 3 37 36 15 France ...... 281.0 321.6 366.2 ... 14 14 16 FYR Macedonia ...... 0.5 4.8 8.5 13.7 20.4 23.0 33.5 19 13 46 17 Georgia ...... 0.5 1.6 ...... 220 18 Guinea 1.4 1.2 0.8 0.8 ...... 0.2 ...... 19 Hong Kong, China 20.0 30.0 101.0 108.0 111.0 131.0 127.0 172.0 ...... 35 ... 20 Hungary ...... 101.0 136.8 213.5 348.6 407.7 19 63 17 21 Italy 157.4 177.1 147.4 160.2 208.6 244.6 373.1 381.3 328.5 6 2 -14 22 Jamaica ...... 0.0 0.2 0.2 ...... 0 ... 23 Kazakhstan 3.4 3.0 2.5 3.5 8.9 17.5 18.7 24.3 44.2 22 30 82 24 Korea, Rep. of ...... 80.0 73.7 106.0 ... -8 44 25 Kyrgyz Republic ... 3.6 ...... 26 Latvia 2.1 3.0 2.5 4.2 5.7 8.2 11.1 14.4 14.8 13 30 3 27 Lithuania 4.6 2.5 1.4 1.7 7.2 6.8 6.7 13.6 14.4 9 103 6 28 Luxembourg ...... 502.9 640.0 814.5 1087.8 1332.3 13 34 22 29 Madagascar ...... 0.1 0.1 0.1 ...... S/C/W/316 30 Malta ...... 12.2 ... 25.0 28.1 30.6 12 12 9 31 Moldova 0.3 0.2 0.3 0.5 0.9 1.1 0.3 1.3 2.0 10 333 54 Page 25 32 Mozambique ...... 4.4 ...... 8.5 ......

Value Annual Growth (%)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2006-08 2007 2008 Page 26 S/C/W/316 33 Netherlands ...... 1510.0 1707.5 2358.2 2921.1 3352.8 10 24 15 Netherlands 34 Antilles 6.9 10.0 9.5 14.4 15.9 15.0 15.2 15.5 ...... 2 ... 35 Norway 68.0 43.8 41.3 51.3 62.6 100.1 154.1 125.3 148.8 11 -19 19 36 Pakistan ...... 2.0 4.0 12.0 18.0 12.0 7.0 7 -33 -42 37 Poland ...... 152.0 181.4 273.1 414.8 503.9 16 52 21 38 Portugal 115.5 152.9 178.0 264.8 293.5 335.9 464.1 582.3 713.8 12 25 23 39 Romania 41.0 44.0 ... 74.0 105.0 12.1 14.0 46.0 55.0 -8 229 20 40 Russian Federation ... 64.5 48.0 57.6 97.0 129.8 161.1 232.9 377.1 18 45 62 41 Serbia ...... 33.7 ...... 42 Singapore 17.0 28.4 58.9 45.9 76.1 167.9 175.0 247.7 ...... 42 ... 43 Slovak Republic ...... 25.2 21.6 41.5 31.6 ... 92 -24 44 Slovenia ...... 20.0 ...... 45 Sweden 508.8 474.8 435.7 699.7 761.1 322.5 356.1 485.6 454.4 -6 36 -6 46 Tajikistan ...... 0.0 0.0 0.0 0.4 1.4 1.2 ...... -14 ... 47 Tonga ...... 0.3 ...... 48 United States 366.0 413.0 288.0 233.0 313.0 351.0 739.0 843.0 ...... 14 ... 49 United Kingdom ...... 1632.1 1976.8 2441.9 2686.0 2546.0 6 10 -5 Note: Figures in bold print indicate a break in series. Source: IMF and WTO estimates based on national data (August 2009).

Annex 2: Imports of accounting, auditing, book-keeping and tax consulting services (Balance of Payments basis) US$ Million Value Annual Growth (%) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2006-08 2007 2008 1 Albania ...... 0 19.2 0.4 0.7 0.1 38.3 9 -86 ... 2 Armenia 0.2 1.1 1.2 1.2 1.6 1.7 2 2.4 2.9 8 20 21 3 Austria ...... 65.6 ...... 4 Azerbaijan ...... 0.1 0.2 0.5 ... 100 150 5 Bahamas ...... 45.7 ...... 6 Bangladesh ...... 0.1 0.1 0.2 1.3 0.1 0.4 0.5 12 300 25 7 Belarus ...... 1.1 0.9 ... 1.5 2.7 12 ... 80 8 Bosnia and Herzegovina ...... 1.1 1.2 1.5 ... 9 25 9 Bulgaria ...... 4.2 6.1 9.6 10 12.6 15 4 26 10 Burkina Faso 1.8 3.1 ...... 11 Cape Verde 1.1 0.3 0.4 1.7 2.2 ...... 12 Cyprus ...... 10.2 12.9 24.9 43.3 39.9 37.4 137.8 24 -6 268 13 Czech Republic ... 6.6 20.5 26.5 59.1 110.7 131.1 160.6 241.4 19 23 50 14 Estonia ...... 1.1 1.4 1.6 1.8 3.8 4.4 15 111 16 15 Finland ...... 67.6 77.4 94.7 118.9 66 ...... 16 FYR Macedonia ...... 4.5 22.5 30 35.3 39.4 44.3 77.7 13 12 75 17 Georgia ...... 0.2 0.1 1.2 0.9 0.7 4.5 61 -22 543 18 Guatemala ...... 0.1 1 2.2 2.3 ... 120 5 19 Guinea 6.2 7.6 4.2 1.8 ...... 0.1 ...... 20 Hong Kong, China 21 32 55 75 98 103 112 109 ...... -3 ... 21 Hungary ...... 35.9 33.4 51.7 54.6 62.5 7 6 14 22 Ireland 709.9 31.4 43.6 36.1 ...... 23 Italy 264.4 239.8 317 468 261 253.3 305.9 336.5 339.6 3 10 1 24 Jamaica ...... 6.8 16.1 18.5 34.5 ...... 86 ... 25 Kazakhstan 8.3 5.9 7.8 9 5.8 11.2 32.8 15.3 37.9 26 -53 148 26 Korea, Republic of ...... 26.1 30.1 35.3 ... 15 17 27 Kyrgyz Republic ... -1.5 ...... 28 Latvia 1 2.8 4.8 9.4 9.3 14.8 17 26.2 34.6 18 54 32 29 Lithuania 4.1 1.2 1.4 2.6 2.2 3.3 5.2 10.6 7.9 17 104 -25 30 Madagascar ...... 1.5 0.3 0.2 ...... S/C/W/316 31 Malawi 16 20 18.1 ...... 32 Moldova 0.3 0.6 0.4 0.3 0.2 0.3 2.5 3.4 4.3 47 36 26 Page 27 33 Mozambique ...... 0.2 1 ... 13.5 ......

Value Annual Growth (%)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2006-08 2007 2008 Page 28 S/C/W/316 34 Netherlands Antilles 2.9 4.1 2.9 3.5 5.1 3.4 3.1 3.6 ...... 16 ... 35 Norway 5.1 3.7 9.2 5.3 3.8 7.1 9.1 11.5 11.4 15 26 -1 36 Pakistan ...... 6 8 3 20 3 4 -8 -85 33 37 Portugal 155.3 178 155.8 160.4 260.2 258.6 306.1 354.8 377.3 5 16 6 38 Romania 96 85 ... 144 229 22.8 23.4 27 47 -18 15 74 39 Russian Federation ... 137.5 100.1 281.8 232.5 165.1 191.6 314.9 533.1 11 64 69 40 Serbia ...... 36.8 ...... 41 Sierra Leone ...... 0.2 1 1.8 0.6 2 0.9 ...... -55 ... 42 Singapore 19.7 22.9 25.2 25.9 39.7 55.2 84.3 119.1 ...... 41 ... 43 Slovak Republic ...... 38.9 35.2 32.7 ...... -7 ... 44 Slovenia ...... 8.7 ...... 45 Sweden 641.8 736.3 756.9 1002.8 1098.5 345.8 401 527.7 478.4 -10 32 -9 46 Tajikistan ...... 1.4 1.4 1.2 1.5 10.5 28.4 ...... 170 ... 47 United States 531 507 489 560 753 947 1516 1764 2269 ... 16 ... Note: Figures in bold print indicate a break in series. Source: IMF and WTO estimates based on national data (August 2009).

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Annex 3: Certified Public Accountants, 2009 Number of Sales (US$) per Countries Sales (US$ Million) Employment establishments employee Argentina 6,571 1,330 67,320 19,754 Australia 3,800 4,000 38,931 102,744 Austria 1,506 1,675 15,429 108,542 Belgium 1,801 1,881 18,456 101,917 Brazil 33,358 6,670 341,767 19,517 Canada 5,999 5,503 61,466 89,535 Chile 3,256 747 33,355 22,383 China 247,316 19,800 2,533,837 7,814 Colombia 7,241 926 74,185 12,484 Czech Republic 1,791 874 18,352 47,637 Denmark 941 1,268 9,640 131,580 Egypt 13,716 659 140,529 4,692 Finland 929 1,073 9,519 112,688 France 10,013 10,392 102,584 101,298 Germany 14,095 14,514 144,410 100,502 Greece 1,790 1,331 18,334 72,573 Hungary 1,656 563 16,971 33,194 India 180,292 4,552 1,847,150 2,464 Indonesia 45,359 2,457 464,723 5,288 Iran 12,844 1,636 131,595 12,433 Ireland 962 1,242 9,853 126,050 Israel 1,304 831 13,363 62,160 Italy 10,534 8,863 107,922 82,124 Japan 22,999 18,805 235,636 79,807 Malaysia 6,000 913 61,469 14,857 Mexico 19,252 4,306 197,241 21,831 Netherlands 2,819 3,271 28,883 113,239 New Zealand 712 464 7,299 63,626 Norway 978 1,926 10,016 192,300 Pakistan 26,766 584 274,226 2,129 Phillipines 14,738 496 150,991 3,282 Poland 5,926 729 60,714 12,006 Portugal 1,873 2,103 19,187 109,605 Russia 26,465 1,066 271,147 3,932 Saudi Arabia 5,469 7,559 56,036 134,903 Singapore 934 2,045 9,567 213,799 South Africa 6,391 680 65,476 10,385 South Korea 9,907 1,206 101,502 11,878 Spain 7,871 3,752 80,644 46,530 Sweden 1,661 6,286 17,020 369,329 Switzerland 1,471 1,955 15,072 129,690 Taiwan 4,707 1,881 48,222 38,999 Thailand 14,218 1,188 145,669 8,156 Turkey 11,791 2,942 120,802 24,353 United Kingdom 10,622 9,885 108,826 90,831 United States 58,613 51,580 525,062 98,237 Venezuela 4,776 1,317 48,936 26,919 Note: Estimates as produced by a proprietary economic model.

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(Industry Definition: NAICS 541211: Offices of Certified Public Accountants. This U.S. industry comprises establishments of accountants that are certified to audit the accounting records of public and private organizations and to attest to compliance with generally accepted accounting practices. Offices of certified public accountants (CPAs) may provide one or more of the following accounting services: (1) auditing financial statements; (2) designing accounting systems; (3) preparing financial statements; (4) developing ; and (5) providing advice on matters related to accounting. These establishments may also provide related services, such as bookkeeping, tax return preparation, and payroll processing.) Source: Barnes Reports, Worldwide Offices of Certified Public Accountants Industry, 2010 Edition.

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Annex 4: Chinese Institute of Certified Public Accountants (CICPA): Statistics of Accounting Firms & Practicing Certified Public Accountants (As of May 31, 2006) Accounting Firms Total Number of Province Number of Accounting Partnerships Practicing CPAs Number of Branches Firms Beijing 9815 395 13 67 Tianjin 1222 64 10 6 Hebei 2606 211 16 33 Shanxi 2327 241 8 10 Neimenggu 1032 145 7 81 Liaoning 3594 360 17 73 Jilin 1375 133 43 32 Heilongjiang 2148 231 25 19 Shanghai 3157 144 26 24 Jiangsu 3657 360 44 102 Zhejiang 2605 277 7 90 Anhui 1563 174 8 61 Fujian 1733 149 21 19 Jiangxi 1158 111 27 27 Shandong 4706 332 64 39 Henan 3015 336 13 136 Hubei 3050 318 24 55 Hunan 2046 133 25 52 Guangdong 4228 341 29 136 Guangxi 1012 63 33 25 Hainan 382 36 1 30 Chongqing 1096 82 22 11 Sichuan 4130 304 40 29 Guizhou 579 53 6 14 Yunnan 1550 110 14 33 Tibet 37 7 0 0 Shaanxi 1621 128 6 11 Gansu 751 111 3 52 Qinghai 175 11 14 5 Ningxia 180 17 9 4 Xinjiang 1200 66 32 6 Shenzhen 1955 228 11 149 Total 69705 5671 618 1413 Source: CICPA.

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Annex 5: American Institute of Certified Public Accountants (AICPA) Membership Figures (compiled as of August 2008) Type of Member Number Members in Consulting 10,253 Members in Education 7,818 Members in Government 11,682 Members in Business & Industry 134,941 Members in Law 2,187 Members in Public Accounting 149,395 Retired Members 23,523 Other 2,691

Total Regular Members 342,490 Total Associate, Student Affiliate, and 17,491 International Members Source: AICPA Internet site (www.aicpa.org).

Annex 6: Indicators of Regulatory Conditions in Professional Service Sectors in 1996, 2003 and 2008

Accounting Architecture Engineering Legal Services Overall 1996 2003 2008 1996 2003 2008 1996 2003 2008 1996 2003 2008 1996 2003 2008 Australia 3.2 1.8 2.1 0.0 0.0 0.0 0.0 0.0 0.6 4.4 2.2 2.2 1.9 1.0 1.2 Austria 3.5 3.0 2.9 4.4 3.3 2.6 4.4 3.3 2.5 4.3 3.0 2.7 4.2 3.1 2.7 Belgium 3.5 2.7 2.7 2.6 2.5 2.2 0.0 0.3 0.0 2.7 3.7 3.8 2.2 2.3 2.2 Canada 3.1 3.2 3.5 3.0 2.8 3.1 2.9 3.2 2.9 3.2 3.2 2.9 3.1 3.1 3.1 Czech Rep. .. 3.2 2.1 .. 1.7 2.2 .. 2.3 2.2 .. 3.8 2.6 .. 2.8 2.3 Denmark 2.1 1.2 1.5 0.0 0.0 0.0 0.0 0.0 0.0 2.1 2.0 3.3 1.1 0.8 1.2 Finland 2.4 2.2 2.2 1.0 0.7 0.7 0.0 0.5 0.5 0.0 0.3 0.3 0.8 1.0 1.0 France 3.0 3.0 2.8 1.8 1.8 2.8 0.2 0.0 0.0 2.3 2.8 2.8 1.8 1.9 2.1 Germany 5.1 2.8 2.4 3.3 2.9 3.1 3.8 3.1 2.3 4.5 3.6 3.6 4.2 3.1 2.9 Greece 2.9 2.0 .. .. 2.8 .. .. 2.8 .. 4.9 4.5 .. .. 3.0 .. Hungary .. 2.0 3.6 .. 2.9 3.2 .. 2.1 2.6 .. 3.0 3.8 .. 2.5 3.3 Iceland .. 2.1 2.1 .. 2.0 1.7 .. 2.3 1.6 .. 1.4 1.8 .. 1.9 1.8 Ireland 2.0 1.6 .. 0.0 0.7 .. 0.0 0.0 .. 2.8 2.8 .. 1.2 1.3 .. Italy 1.4 4.1 4.2 4.3 3.1 3.7 4.0 3.8 3.5 3.6 3.7 3.9 3.3 3.7 3.8 Japan 3.0 2.2 2.2 2.5 0.9 1.2 2.0 3.4 0.3 3.4 3.3 2.3 2.7 2.4 1.5 Korea .. 2.0 2.0 .. 2.5 2.5 .. 2.0 2.0 .. 2.6 2.6 .. 2.3 2.3 Luxembourg 3.3 2.8 3.3 3.1 3.3 4.0 3.2 3.2 4.0 3.1 3.1 2.9 3.2 3.1 3.5 Mexico 2.8 1.9 1.8 2.3 1.2 1.8 2.6 1.5 1.8 1.7 1.9 1.8 2.3 1.6 1.8 Netherlands 3.2 2.9 1.9 0.0 0.0 0.0 0.4 1.5 0.0 2.0 2.0 2.9 1.4 1.6 1.2 New Zealand 2.5 1.3 3.5 1.8 1.5 0.0 2.5 1.5 0.0 3.0 3.3 3.8 2.4 1.9 1.8 Norway 2.4 1.9 2.5 1.8 0.9 1.2 1.8 1.2 0.6 3.2 2.6 3.2 2.3 1.6 1.9 Poland .. 2.8 2.8 .. 1.8 2.1 .. 2.1 2.1 .. 3.6 3.7 .. 2.5 2.7 Portugal 1.9 2.1 2.2 2.0 1.3 2.2 3.7 1.7 2.2 3.4 3.6 3.5 2.8 2.2 2.5 Slovak Rep. .. 2.2 .. .. 2.6 .. .. 2.4 .. .. 3.7 .. .. 2.8 .. Spain 3.1 2.1 1.9 3.5 2.3 2.1 3.0 1.5 1.6 4.0 3.6 2.6 3.4 2.4 2.1 Sweden 2.5 2.4 1.8 0.0 0.0 0.0 0.0 0.0 0.6 0.8 1.2 0.0 0.8 0.9 0.6 Switzerland 1.2 0.3 1.8 1.3 0.4 0.7 1.0 0.4 0.4 3.7 3.0 2.1 1.8 1.0 1.2 Turkey 4.0 4.3 4.3 3.2 2.4 2.4 2.6 2.4 2.4 3.8 4.5 4.5 3.4 3.4 3.4 UK 3.2 2.1 2.6 0.0 0.0 0.0 0.0 0.0 0.0 2.3 2.1 0.3 1.4 1.1 0.7 United States 2.6 1.7 1.7 .. 1.5 0.3 2.4 1.6 0.3 2.9 1.9 1.9 .. 1.7 1.1 Note: Lower scores indicate lower levels of restrictiveness (see methodology at http://www.oecd.org/dataoecd/25/19/42220487.xls). The values for Greece, Ireland and Slovak Republic are preliminary. Source: OECD. S/C/W/316 Page 33

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Annex 7: Guidelines for Mutual Recognition Agreements or Arrangements in the Accountancy Sector

WORLD TRADE S/L/38 28 May 1997 ORGANIZATION (97-2295)

Council for Trade in Services

GUIDELINES FOR MUTUAL RECOGNITION AGREEMENTS OR ARRANGEMENTS IN THE ACCOUNTANCY SECTOR

Introduction

This document provides practical guidance for governments, negotiating entities or other entities entering into mutual recognition negotiations on accountancy services. These guidelines are non-binding and are intended to be used by Members on a voluntary basis, and cannot modify the rights or obligations of the Members of the WTO.

The objective of these guidelines is to make it easier for parties to negotiate recognition agreements and for third parties to negotiate their accession to such agreements or to negotiate comparable ones. The most common way to achieve recognition has been through bilateral agreements. Article VII of the GATS recognises this as permissible. There are differences in education and examination standards, experience requirements, regulatory influence and various other matters, all of which make implementing recognition on a multilateral basis extremely difficult. Bilateral negotiations will enable those involved to focus on the key issues related to their two environments. Once bilateral agreements have been achieved, however, this can lead to other bilateral agreements, which will ultimately extend mutual recognition more broadly.

Where autonomous recognition is granted, it is suggested that the WTO be informed of the relevant elements in these guidelines for transparency purposes. Such elements could include, for example, those covered in sections B.3, B.4(a) and (b), B.5 and B.6.

The examples listed under the various sections of these guidelines are provided by way of illustration. The listing of these examples is indicative and is intended neither to be exhaustive nor as an endorsement of the application of such measures by WTO Members.

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A. Conduct of negotiations and relevant obligations under the GATS

With reference to the obligations of WTO Members under Article VII of the GATS, this section sets out points considered useful in the discharge of these obligations. A copy of Article VII is annexed to these guidelines.

1. Opening of negotiations

The information supplied to the WTO should include the following:

- the intent to enter into negotiations;

- the entities involved in discussions (e.g. governments, national organisations in the accountancy sector or institutes which have authority - statutory or otherwise - to enter into such negotiations);

- a contact point to obtain further information;

- subject of negotiations (specific activity covered);

- the expected time of the start of negotiations and an indicative date for the expression of interest by third parties.

2. Results

On conclusion of an MRA, the information supplied should include the following:

- the content of the agreement (if a new agreement);

- significant modifications to the agreement (if an agreement already exists).

3. Follow-up actions

For WTO Members supplying information under paragraph (1) above, follow-up actions include ensuring that:

- the conduct of negotiations and the agreement itself comply with the provisions of GATS - in particular Article VII;

- they adopt any measures and undertake any action required to ensure the implementation and monitoring of the agreement, on their own account, and by the competent authorities, or, in pursuance of Article I of the GATS, encourage adoption of such measures and action by relevant sub-national authorities and by other organisations;

- they respond promptly to requests from other WTO Members seeking to enter into MRA negotiations.

4. Single negotiating entity

Where no single negotiating entity exists, Members are encouraged to establish one.

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B. Form and content of agreement

This section sets out various issues that may be addressed in any negotiations and, if so agreed, included in the final agreement. It includes some basic ideas on what a Member might require of foreign professionals seeking to take advantage of an MRA.

1. Participants

The MRA should identify clearly:

- the parties to the agreement (for example, governments, national accountancy organisations or institutes);

- competent authorities or organisations other than the parties to the agreement, if any, and their position in relation to the agreement;

- the status and area of competence of each party to the agreement.

2. Purpose of agreement

The purpose of the MRA should be clearly stated.

3. Scope of agreement

The MRA should set out clearly:

- the scope of the agreement in terms of the specific accountancy professions or titles and professional activities it covers in the territories of the parties;

- who is entitled to use the professional titles concerned;

- whether the recognition mechanism is based on qualifications, or on the licence obtained in the country of origin, or some other requirement;

- whether the agreement covers temporary and/or permanent access to the profession concerned.

4. Mutual recognition provisions

The MRA should clearly specify the conditions to be met for recognition in the territories of each party and the level of equivalence agreed between the parties. The precise terms of the agreement will depend on the basis on which the MRA is founded, as discussed above. In case the requirements of the various sub-central jurisdictions of a party to an MRA are not identical, the difference should be clearly presented. The agreement should address the applicability of the recognition granted by one sub- central jurisdiction in the other sub-central jurisdictions of the party.

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(a) Eligibility for recognition

(i) Qualifications

If the MRA is based on recognition of qualifications, then it should, where applicable, state:

- the minimum level of education required (entry requirements, length of study, subjects studied);

- the minimum level of experience required (location, length and conditions of practical training or supervised professional practice prior to licensing, framework of ethical and disciplinary standards);

- examinations passed (esp. examinations of professional competence);

- the extent to which home country qualifications are recognised in the host country;

- the qualifications which the parties are prepared to recognise, for instance, by listing particular diplomas or certificates issued by certain institutions, or by reference to particular minimum requirements to be certified by the authorities of the country of origin, including whether the possession of a certain level of qualification would allow recognition for some activities but not others.

(ii) Registration

If the MRA is based on recognition of the licensing or registration decision made by regulators in the country of origin, it should specify the mechanism by which eligibility for such recognition may be established.

(b) Additional requirements for recognition in the host state ("compensatory measures")

Where it is considered necessary to provide for additional requirements, in order to ensure the quality of the service, the MRA should set out the conditions under which those requirements may apply, e.g. in case of shortcomings in relation to qualification requirements in the host country or knowledge of local law, practice, standards and regulations. This knowledge should be essential for practice in the host jurisdiction or required because there are differences in the scope of licensed practice.

Where additional requirements are deemed necessary, the MRA should set out in detail what they entail (for example, examination, aptitude test, additional practice in the host country or in the country of origin, practical training, language used for examination).

5. Mechanisms for implementation

The MRA should state:

- the rules and procedures to be used to monitor and enforce the provisions of the agreement;

- the mechanisms for dialogue and administrative co-operation between the parties;

- the means of arbitration for disputes under the MRA.

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As a guide to the treatment of individual applicants, the MRA should include details on:

- the focal point of contact in each party for information on all issues relevant to the application (name and address of competent authorities, licensing formalities, information on additional requirements which need to be met in the host country etc.);

- the length of procedures for the processing of applications by the relevant authorities of the host country;

- the documentation required of applicants and the form in which it should be presented and any time limits for applications;

- acceptance of documents and certificates issued in the country of origin in relation to qualifications and licensing;

- the procedures of appeal to or review by the relevant authorities;

- any fees that might be reasonably required.

The MRA should also include the following commitments:

- that requests about the measures will be promptly dealt with;

- that adequate preparation time will be provided where necessary;

- that any exams or tests will be arranged with reasonable periodicity;

- that fees to applicants seeking to take advantage of the terms of the MRA will be in proportion to the cost to the host country or organisation;

- that information on any assistance programmes in the host country for practical training, and any commitments of the host country in that context be supplied.

6. Licensing and other provisions in the host country

Where applicable:

- the MRA should also set out the means by which, and the conditions under which, a licence is actually obtained following the establishment of eligibility, and what this licence entails (a licence and its content, membership of a professional body, use of professional and/or academic titles etc.). Any licensing requirements other than qualifications should be explained, e.g.:

-- an office address, an establishment requirement or a residency requirement;

-- a language requirement;

-- proof of good conduct and financial standing;

-- professional indemnity insurance;

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-- compliance with host country's requirements for use of trade/firm names;

-- compliance with host country ethics (for instance independence and incompatibility).

- in order to ensure the transparency of the system, the MRA should include the following details for each party:

-- the relevant laws and regulations to be applied (disciplinary action, financial responsibility, liability, etc.);

-- the principles of discipline and enforcement of professional standards, including disciplinary jurisdiction and any consequential limitations on the professionals;

-- the means for ongoing verification of competence;

-- the criteria for and procedures relating to revocation of the registration of professionals;

-- regulations relating to any nationality and residency requirements needed for the purposes of the MRA.

7. Revision of the agreement

If the MRA includes terms under which it can be reviewed or revoked, the details should be clearly stated.

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ANNEX

Article VII

Recognition

1. For the purposes of the fulfilment, in whole or in part, of its standards or criteria for the authorization, licensing or certification of services suppliers, and subject to the requirements of paragraph 3, a Member may recognize the education or experience obtained, requirements met, or licenses or certifications granted in a particular country. Such recognition, which may be achieved through harmonization or otherwise, may be based upon an agreement or arrangement with the country concerned or may be accorded autonomously.

2. A Member that is a party to an agreement or arrangement of the type referred to in paragraph 1, whether existing or future, shall afford adequate opportunity for other interested Members to negotiate their accession to such an agreement or arrangement or to negotiate comparable ones with it. Where a Member accords recognition autonomously, it shall afford adequate opportunity for any other Member to demonstrate that education, experience, licenses, or certifications obtained or requirements met in that other Member's territory should be recognized.

3. A Member shall not accord recognition in a manner which would constitute a means of discrimination between countries in the application of its standards or criteria for the authorization, licensing or certification of services suppliers, or a disguised restriction on trade in services.

4. Each Member shall:

(a) within 12 months from the date on which the WTO Agreement takes effect for it, inform the Council for Trade in Services of its existing recognition measures and state whether such measures are based on agreements or arrangements of the type referred to in paragraph 1;

(b) promptly inform the Council for Trade in Services as far in advance as possible of the opening of negotiations on an agreement or arrangement of the type referred to in paragraph 1 in order to provide adequate opportunity to any other Member to indicate their interest in participating in the negotiations before they enter a substantive phase;

(c) promptly inform the Council for Trade in Services when it adopts new recognition measures or significantly modifies existing ones and state whether the measures are based on an agreement or arrangement of the type referred to in paragraph 1.

5. Wherever appropriate, recognition should be based on multilaterally agreed criteria. In appropriate cases, Members shall work in cooperation with relevant intergovernmental and non- governmental organizations towards the establishment and adoption of common international standards and criteria for recognition and common international standards for the practice of relevant services trades and professions.

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Annex 8: Disciplines on Domestic Regulation in the Accountancy Sector

WORLD TRADE S/L/64 17 December 1998 ORGANIZATION (98-5140) 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).

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

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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;

(c) information on technical standards; and

(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.

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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.

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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 organizations2 applied by that Member.

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.

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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.

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.

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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.

______

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.

Annex 9: Progress Report on G-20 Actions to Promote Financial Regulatory Reform, September 2009: Accounting Standards

I. ACCOUNTING STANDARDS 48 We have agreed that the accounting To date, the International Accounting Standards Board (IASB) published in May an exposure draft (proposed accounting standard) standard setters should improve on fair value measurement that directly incorporates the staff guidance issued in April by the US Financial Accounting Standards standards for the valuation of financial Board (FASB) to better identify inactive markets and determine whether transactions are orderly. Comments are due by end- instruments based on their liquidity and September, with the final standard expected in 2010. Also, in June the IASB published a discussion document on the effects of fair investor’s holding horizons, while value gains arising from deterioration in a company’s own credit risk, with comments due by the beginning of September. Based on reaffirming the framework of fair value its review of comments the IASB will decide how to address this issue in its standard or guidance on fair value measurement. See accounting. also Action 50.

49 Accounting standard setters should take The IASB plans to address the G20 Leaders call for reduced complexity of accounting standards for financial instruments through action to reduce the complexity of the development of three new standards, based on exposure drafts issued in 2009. The IASB plans to issue a final standard on accounting standards for financial classification and measurement of financial instruments by end 2009 for optional use in 2009 financial statements, and an exposure instruments by the end of 2009. draft was issued in July 2009, which proposes to reduce the number of categories of financial assets and liabilities to two (fair value and amortised cost). Proposals on the remaining portions of IAS 39 – covering an expected loss approach to provisioning (see below) and hedge accounting – are to be issued by the end of 2009.

50 Accounting standard setters should take The IASB is working to enhance its provisioning standards and guidance on an accelerated basis, including by considering a action to strengthen accounting proposed impairment standard based on an expected loss (called an “expected cash flow”) approach to loan loss provisioning for recognition of loan-loss provisions by issuance in October 2009. The IASB published initial proposals on its website in June to seek input regarding the feasibility of this incorporating a broader range of credit expected loss approach before it issues an exposure draft in October 2009. information by the end of 2009.

51 Accounting standard setters should take On provisioning, see Action 50. action to improve accounting standards The IASB is working to enhance the accounting and disclosure standards for off-balance sheet entities. The IASB plans to finalise for provisioning, off-balance sheet the consolidation standard by the end of 2009 and the derecognition standard in the second half of 2010. exposures and valuation uncertainty by VI. In June 2009, the FASB published its final standards, Financial Accounting Statements No. 166, Accounting for the end of 2009. VII. Transfers of Financial Assets, and No. 167, Amendments to FASB Interpretation No. 46(R), which change the way VIII. entities account for securitisations and special-purpose entities. The new standards will impact financial institution IX. balance sheets beginning in 2010. The IASB is giving further consideration to a possible approach to address significant valuation uncertainty through clarifying its existing guidance on valuation adjustments as part of its plan to finalise its exposure draft on fair value measurement. 52 Accounting standard setters should take The IASB published in May 2009 an exposure draft (proposed accounting standard) on fair value measurement that largely action to achieve clarity and consistency incorporates the staff guidance issued in April by the FASB to better identify inactive markets and determine whether transactions in the application of valuation and are orderly. provisioning standards internationally, In July 2009 the BCBS proposed to the IASB high-level principles for replacement of IAS 39. working with supervisors by the end of S/C/W/316

2009. Page 47

I. ACCOUNTING STANDARDS

53 We call on our international accounting In addition to the specific international convergence activities noted above, nearly all FSB jurisdictions have programmes Page 48 S/C/W/316 bodies to redouble their efforts to underway to converge with or adopt the standards of the International Accounting Standards Board by 2012. achieve a single set of high quality, global accounting standards within the context of their independent standard setting process; and complete their convergence project by June 2011.

54 The IASB’s institutional framework The IASB is working together with supervisors in key areas, including provisioning and valuation, and has had a number of should further enhance the involvement meetings with the BCBS on these issues. In addition, supported by the FSB, the IASB held a meeting with senior officials and of various stakeholders. technical experts of prudential authorities, market regulators and their international organisations to discuss financial institution reporting issues on 27 August 2009. This meeting included senior representatives from a number of emerging market economies that are FSB members.

55 Regulators and accounting standard National authorities have taken, and are continuing to take, steps to encourage firms to provide disclosures consistent with setters should enhance the required international best practice by the Senior Supervisors Group and the FSB, as appropriate. Firms have continued to enhance their risk disclosure in relation to complex disclosures in their published annual reports. financial products by firms to market participants. (By end 2009)

Source: Progress Report On The Actions To Promote Financial Regulatory Reform Issued By The U.S. Chair Of The Pittsburgh G-20 Summit – 25 September 2009 (http://www.g20.org/Documents/pittsburgh_progress_report_250909.pdf).

Annex 10: Summary of Specific Commitments in Professional Services

Countries 01.A.a. 01.A.b. 01.A.c. 01.A.d. 01.A.e. 01.A.f. 01.A.g. 01.A.h. 01.A.i. 01.A.j. 01.A.k. Total Albania X X X X X X X X X X 10 Antigua and Barbuda X X X X X X 6 Argentina X X X X 4 Armenia X X X X X X X X X 9 Australia X X X X X X X X X 9 Austria X X X X X X X X X X X 11 Barbados X X 2 Belize X 1 Botswana X X X X X X 6 Brazil X X X X 4 Brunei Darussalam X X 2 Bulgaria X X X X X X X 7 Burundi X X 2 Cambodia X X X X X X X 7 Canada X X X X X X X 7 Cape Verde X X X X X X X X 8 Chile X X X X 4 China X X X X X X X X 8 Colombia X X X 3 Congo RP X X 2 Costa Rica X 1 Côte d'Ivoire X 1 Croatia X X X X X X X X X X 10 Cuba X X X 3 Cyprus X X 2 Czech Republic X X X X X X X X X 9 Djibouti X 1 Dominican Republic X X X X X X X X 8 Ecuador X X X X X X 6 El Salvador X X X X X 5 Estonia X X X X X 5 European Communities X X X X X X X X X X 10 Finland X X X X X X X X X 9 FYR Macedonia X X X X X X X X X X 10 S/C/W/316 Gambia X X X X X X X X X X 10 Page 49 Georgia X X X X X X X X X 9 Guinea X 1 Guyana X X X X X 5 Haiti X 1

Countries 01.A.a. 01.A.b. 01.A.c. 01.A.d. 01.A.e. 01.A.f. 01.A.g. 01.A.h. 01.A.i. 01.A.j. 01.A.k. Total

Hong Kong X X 2 Page 50 S/C/W/316 Hungary X X X X X X X X 8 Iceland X X X X X X X X X 9 India X 1 Indonesia X X X X 4 Israel X X X X X X 6 Jamaica X X X X X X X X 8 Japan X X X X X X X 7 Jordan X X X X X X X X X 9 Korea X X X X X X 6 Kuwait X X X X 4 Kyrgyz Republic X X X X X X X X X X 10 Latvia X X X X X X X X X X 10 Lesotho X X X X X X X X X X 10 Liechtenstein X X X X X X X 7 Lithuania X X X X X X X X X X 10 Malawi X X X 3 Malaysia X X X X X X X X 8 Maldives X 1 Mexico X X X X X 5 Moldova X X X X X X X X X X 10 Mongolia X X 2 Morocco X X 2 Nepal X X X X X X X 7 New Zealand X X X X X X 6 Norway X X X X X X X X X X 10 Oman X X X X X X X X X 9 Pakistan X X X 3 Panama X X X X X X X 7 Papua New Guinea X X X X 4 Peru X X X X 4 Poland X X X X X X 6 Qatar X X X X X 5 Romania X X X X 4 Rwanda X X 2 Saudi Arabia X X X X X X X X X 9 Senegal X X X 3 Sierra Leone X X X X X X X X X X X 11 Singapore X X X X X X X 7 Slovak Republic X X X X X X X X X 9

Countries 01.A.a. 01.A.b. 01.A.c. 01.A.d. 01.A.e. 01.A.f. 01.A.g. 01.A.h. 01.A.i. 01.A.j. 01.A.k. Total

Slovenia X X X X X X 6 Solomon Islands X X X X 4 South Africa X X X X X X X X X X 10 Swaziland X X X 3 Sweden X X X X X X X X X X 10 Switzerland X X X X X X X X X 9 Thailand X X X X X 5 Chinese Taipei X X X X X X X X 8 Tonga X X X X X X X X 8 Trinidad and Tobago X X X X 4 Turkey X X X X 4 Ukraine X X X X X X X X X X 10 United Arab Emirates X X X X X X 6 USA X X X X X X X 7 Venezuela X X X X X X 6 Viet Nam X X X X X X X X 8 Zambia X X X 3 Total 66 77 53 70 78 50 53 55 43 24 8 577 Legend: 01.A.a. Legal Services 01.A.g. Urban Planning and Landscape Architectural Services 01.A.b. Accounting, Auditing and Bookkeeping Services 01.A.h. Medical and Dental Services 01.A.c. Taxation Services 01.A.i. Veterinary Services 01.A.d. Architectural Services 01.A.j. Services Provided by Midwives, Nurses, Physiotherapists 01.A.e. Engineering Services 01.A.k. Other 01.A.f. Integrated Engineering Services Source: WTO Secretariat.

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Annex 11: Summary of Specific Commitments in Accountancy The table indicates for each of the three sub-sectors of the accountancy sector, i.e. accounting, auditing and bookkeeping, the Members which have scheduled a specific commitment. (Additions since the previous Note are indicated in bold.)

Countries Accounting Auditing Bookkeeping Total Albania X X X 3 Antigua and Barbuda X X X 3 Argentina X X X 3 Armenia X X X 3 Australia X X X 3 Austria X X X 3 Brazil X X X 3 Brunei Darussalam X 1 Bulgaria X X 2 Cambodia X X X 3 Canada X X X 3 Cape Verde X X X 3 Chile X 1 China X X X 3 Colombia X X 2 Croatia X X X 3 Cuba X X 2 Cyprus X X X 3 Czech Republic X X X 3 Dominican Republic X X 2 Ecuador X X X 3 El Salvador X X 2 Estonia X X X 3 European Community X X X 3 Finland X X 2 FYR Macedonia X X X 3 Gambia X X X 3 Georgia X X X 3 Guyana X X X 3 Hong Kong X 1 Hungary X X X 3 Iceland X X X 3 Israel X 1 Jamaica X X X 3 Japan X X X 3 Jordan X X X 3 Korea, Republic of X X X 3 Kyrgyz Republic X X X 3 Latvia X X X 3 Lesotho X 1 Liechtenstein X X X 3 Lithuania X X X 3 Malawi X X 2 Malaysia X X X 3 Maldives X X X 3 Mexico X X X 3 Moldova X X X 3 Mongolia X 1 Morocco X X X 3

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Countries Accounting Auditing Bookkeeping Total Nepal X X X 3 New Zealand X X X 3 Norway X X X 3 Oman X X X 3 Panama X 1 Papua New Guinea X X X 3 Peru X X X 3 Poland X X X 3 Qatar X X X 3 Saudi Arabia X X X 3 Sierra Leone X X X 3 Singapore X X 2 Slovak Republic X X X 3 Slovenia X X X 3 Solomon Islands X X X 3 South Africa X 1 Sweden X X 2 Switzerland X X X 3 Thailand X X X 3 Chinese Taipei X X X 3 Tonga X X X 3 Turkey X X X 3 Ukraine X X X 3 United Arab Emirates X X X 3 USA X X X 3 Venezuela X X 2 Viet Nam X X X 3 Zambia X X X 3 Total 72 71 62 Source: WTO Secretariat.

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Annex 12: Analysis of GATS Commitments in Accountancy Services: Comparison with Architectural, Engineering, and Legal Services (Percentages of full, partial and no commitments by sub-sector and by mode of supply) Market Access Cross-border Consumption Commercial (Number of Members Supply Abroad Presence with Commitments) F P N F P N F P N

Accounting, Auditing and Bookkeeping Services (77 commitments ) 42 36 22 53 36 10 29 70 1 Sectoral only

(including horizontal 38 40 22 48 42 10 14 84 1 limitations) Architectural Services (70 commitments) Sectoral only 67 17 16 79 13 9 50 47 3

(including horizontal 61 23 16 71 20 9 29 69 3 limitations) Engineering Services (78 commitments) Sectoral only 62 22 17 67 21 13 54 44 3

(including horizontal 55 28 17 59 28 13 27 71 3 limitations) Legal Services (66 commitments) Sectoral only 23 67 11 32 62 6 15 79 6

(including horizontal 20 70 11 27 67 6 6 88 6 limitations) Notes: 1. F: Full commitment (indicated by "none" in the market access column of the Schedule) P: Partial commitment (limitations inscribed in the market access column of the Schedule) N: No commitment (indicated by "unbound" in the market access column of the Schedule) 2. The figures in italics indicate the percentages taking into account horizontal commitments applicable to all sectors in the schedule. Source: WTO Secretariat.

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