Mutual Recognition Agreement: The Challenges and Opportunities for CPAs

2015 Accountancy Week CelebrationPhilippine Institute of Certified Public Accountants

Estelita C. Aguirre Resource Speaker

July 15, 2015

1 Objectives of ASEAN and AFA History of ASEAN Integration MRA Framework Basic Features of Implementing MRA Accounting/Auditing Practices in ASEAN

Countries Facts and Figures Challenges

Presentation Outline 2

Association of Southeast Asian Nations (ASEAN)

3 To transform ASEAN into a stable, prosperous and highly competitive region with

Equitable economic development Reduced poverty and socio-economic

disparities

Objectives of ASEAN 4

ASEAN Federation of Accountants (AFA)

5 To provide an umbrella organisation for ASEAN accountants for the further advancement of the status of the profession in the region.

To establish a medium for closer relations, regional cooperation, and assistance amongASEAN accountants

AFA Objectives 6

History of ASEAN Integration

9th ASEAN Summit in Bali Indonesia (2003):The declaration of Bali Concord II taking the ASEAN integration to a higher plane by 2020

12th ASEAN Summit in Cebu (2006) :Accelerated the establishment of integration from 2020 to 2015

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Roadmap for the ASEAN Community

14th ASEAN Summit Chan-Am ( 2009 March 1)Declaration on the Roadmap for the ASEAN Community (2009-2015) was signed, including

ASEAN Political-Security Community Blueprint ASEAN Economic Community BlueprintASEAN Socio-Cultural Community Blueprint

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ASEAN AGREEMENTRoadmap for an ASEAN Community

(2009-2015)One vision. One identity. One Community.

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1. With a single market and production base2. A highly competitive economic region3. A region of equitable development4. A region fully integrated into the global

economy

Key Characteristic of AEC10

Free flow of goodsFree flow of servicesFree flow of skilled laborFree flow of investmentFreer flow of capitalHarmonized rules and regulations

Core Vision of AEC11

. Free Flow of Professional Services

via MRA.

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ASEAN MRA is a multilateral arrangement amongASEAN countries or bilateral arrangement betweentwo ASEAN countries to enable professionalsregistered in its signatory countries to be equallyrecognized in another signatory country

ASEAN MRA 13

ASEAN MRAs for Professionals

Engineering Services Dec 2005Nursing Services Dec 2006Architecture Nov 2007Medicine Feb 2009Dentistry Feb 2009 Tourism Services Nov 2012Accountancy Services Nov 2014

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MRA Framework on Accountancy

Signed in Chan-Am Thailand Education Licenses Demonstration of Competency Experience Compliance with IFAC Standards and Guidelines

Feb 26, 2009

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Education

The AMS agree that a PPA of an AMS who seeks recognition in another AMS should have met the educational requirements in effect in the Country of Origin. Such individual's educational credentials may be accepted as having satisfied the educational requirements of the Host Country's NAB and/or PRA.

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Licenses

Where licenses are required from governmental or regulatory bodies other than the NAB and/or PRA of each AMS, the AMS shall, subject to their Domestic Regulations, use their best endeavours to facilitate the PPA of the other AMS to obtain the necessary approval.

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Competencies

The AMS recognizes the need to require the PPA seeking recognition to demonstrate competencies to assure that the PPA has satisfactory knowledge of the Domestic Regulations of the Host Country.

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Experience

A PPA seeking recognition shall meet the experience requirements specified by the Host Country.

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IFAC Standards and Guidelines

The professional competencies and qualifications threshold for the practice of accountancy in ASEAN Member States shall be established, maintained and upheld according to the IFAC standards taking into consideration the Domestic Regulations of each ASEAN Member State.

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Building Blocks of SMOs(Statements of Membership Obligations)

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Implementing MRA on Accountancy Services

Signed in Bali Indonesia by Brunei, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Singapore, Thailand, Vietnam and Philippines

November 2015.

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Basic Features of the Implementing MRA

(1) Limited flow of accountancy services. MRAexcludes external audit and other services that require domestic licensing

(2) Creation of Monitoring Councils(3) Creation of ACPACC(4) Recognition of ASEAN Chartered Professional

Accountants (ACPA)(5) Setting up of an ACPAR(6) Acceptance of a Recognized Foreign Professional

Accountant (RFPA) by the host country

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1st Basic Feature of MRA

Limited flow of accountancy services:

MRA Article 3 excludes external audit and other

services that require domestic licensing.

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Article 3 Scope

3.1 This Arrangement shall cover the provision of accountancy services covered under Central Product Classification (hereinafter referred to as “CPC”) 862 of the Provisional CPC of the United Nations, except for signing off of the independent auditor’s report and other accountancy services that requires domestic licensing in ASEAN MemberStates.

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Article 3 Scope

3.2 Notwithstanding paragraph 1, cross-border movement of Professional Accountants providing external auditing services and other accountancy-related services thatrequires domestic licensing in ASEAN Member States may continue to be facilitated through bilateral and/ or multilateral MRAs between or among the Member States.

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2nd Basic Feature of MRA

Creation of a Monitoring Council (MC) in each

Member State

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Monitoring Committee (MC)

Participating AMS must establish a national MC MC members are national stakeholders

relevant to the MRA Functions include developing and maintaining

ACPA application assessment process, and authorised to certify the qualification and experience of individual professional accountants

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3rd Basic Features of MRA

Creation of ASEAN Chartered Professional Accountants Coordinating Committee (ACPACC)

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ACPACC

At least one appointed representative from each MCwill compose the ACPACC

Functions include authority to confer ACPA title andpromoting the acceptance of ACPA.

Report progress of work to ASEAN Coordinating Committee on Services (CCS)

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4th Basic Feature MRA

Recognition of ASEAN Chartered ProfessionalAccountants (ACPAs)

31ACPA

ASEAN Chartered Professional Accountant (ACPA) refers to a natural person who is a national of an ASEAN Member State and is assessed by the NAB and/or PRA of any participating ASEAN Member States as being technically, morally, and legally qualified to undertake professional accountancy practice.

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Qualifications of an ACPA

Accredited accountancy

degree/professional accountancy

examination programNAB/PRA certification no record of serious

violation on technical, professional or ethical

standards for accountancy practice

Comply with Continuing

Professional Development

(CPD) policy of the CO

Valid professional registration

certificate in the Country of Origin (CO) by NAB/PRA

3 years or more of relevant post

qualifying practical

experience within a 5 year period

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5th Basic Features of MRA

Setting up of an ASEAN Chartered Professional Accountants Register (ACPAR)

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ACPAR

The ASEAN Chartered Professional Accountant Register is where all ACPA are emplaced upon acceptance of the application by the ACPACC and payment of the necessary fees.

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6th Basic Features of MRA

(6) Acceptance of a Recognized Foreign ProfessionalAccountant (RFPA) by the host country through NAB/PRB

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NAB and/or PRA 37

Country of Origin 38

Host Country 39

RFPA

A Registered Foreign Professional Accountant (RFPA)refers to an ACPA who has successfully applied to and is authorized by the NAB and/or PRA of a Host Country to work, not in independent practice, but in collaboration with one or more Professional Accountant of the Host Country.

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Process to Become an ACPA & RFPA

MC assesses the professional accountant in

accordance with NAB/PRB rules and submit to ACPACC

Successful candidates to pay ACPA subscription fees to be listed on the ACPAR

ACPACC receives and evaluates application if applicant has complied fully with the requirements

ACPA submits application to NAB/ PRA (host country) to become an RFPA

.....

NAB/PRA approves application after assessment of ACPA to be permitted to work as RFPA

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Responsibility of NAB and/or PRA

Consider application and authorize ACPA to apply as Registered Foreign ProfessionalAccountants (RFPA)

Monitor and assess the professional practiceof the RFPA

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Accounting and Auditing PracticesAFA and World Bank Findings

Source: World Bank and AFA Report on Current Status of the Accounting and Auditing Profession in ASEAN Countries Sept 2014

Practices in the ASEAN 43

1. Recognition of Foreign Certifications2. Accounting Education3. Professional Examination4. Relevant Practical experience5. CPD Units6. Independence and Ethics7. Accounting Standard Setting8. Financial Reporting Standards9. Auditing Standard Setting10. Quality Assurance and Oversight

Current Status of Profession 44

Brunei- CPA Australia, ACCA, CCANZ, ICAEW, ICAICambodia- CPA Australia, ACCA, MIA, PICPA, ISCAIndonesia-MIALaos – recognize foreign certification subject to testMalaysiaACCA/ICAEW/CIMA/ICAScotland/ICAIreland,

CAANZ,ICAIndia, CanadaICA,CPA AustraliaMyanmar - NonePhilippines - NoneSingapore- CPA Australia, ACCA, ICAEW w/pathwayThailand -NoneVietnam – ACCA forVAA ; CPA Australia for VACPA

1.Recognizes Foreign Certifications45

Brunei – NA as long as members of ACCA,ICAEW, etcCambodia –Not clearIndonesia – requiredLaos – Syllabus to be reviewed to enable certificationMalaysia – requiredMyanmar – required Philippines - requiredSingapore – requiredThailand – requiredVietnam – required

2. University Accounting Education46

Brunei – NA Cambodia –Not clearIndonesia – Yes, IAI and IAPILaos – Yes, by LICPA and MoFMalaysia – MIA:No Exams for recognised degree;

For unrecognised degree – Yes ; for MICPA -YesMyanmar – Yes Philippines –Yes, by the BOASingapore – Yes, by ISCA, if no accredited degreeThailand – Yes, by FAPVietnam – Yes, by the MoF

3. Professional Examination47

Brunei – 3 yearsCambodia –3 yearsIndonesia – 3 yearsLaos – 3 yearsMalaysia - 3 yearsMyanmar - 2 years Philippines – 3 years for public practice only Singapore – 3 years post/5-yrs pre-post qualificationThailand – 3 yearsVietnam – 5 years

4. Relevant Practical Experience48

Brunei –Per British Commonwealth PAO’s requirementsCambodia - 40 hours per one yearIndonesia – 120 hours per 3 yearsLaos – 120 hours per 3 yearsMalaysia – 120 hours per 3 yearsMyanmar – 120 hours per 3 yearsPhilippines –60 hours per 3 yearsSingapore – 120 hours per 3 yearsThailand – 18 hours per 1 yearVietnam – 40 hours per 1 year

5. CPD Units 49

Brunei – IFAC Code of ethics (CoE)Cambodia – KICPAA CoEIndonesia – Various rotation rules/various cooling periodLaos – LICPA CoE based IFAC CoEMalaysia – MIA based on IFAC’s CoEMyanmar - MAC law in line with IFAC’s CoEPhilippines – Code of Ethics based on 2010 IFAC’s CoESingapore – ISCA’s is based on IFAC’s CoEThailand – Code of Ethics based on 2012 IFAC’s CoEVietnam – Code of Ethicsbased on IFAC’s CoE

6.a Independence & Ethics 50

Brunei – adopted IFAC Code of Ethics for BanksCambodia – no mention in CoE; SECC/NBC sets 3 yearIndonesia – All audits: Partner - 3 yrs; Audit firm- 6 yrs Laos – Not stated in any legislationMalaysia –Audit partners – 5 years; no firm rotationMyanmar – no informationPhilippines – Audit partners –5 yrs for listed CosSingapore – listed Cos/Banks -5yrs/KAPs forPIEs -7 yrsThailand – Audit partners – 5 yrs for PIEsVietnam – No information

6.b Rotation 51

Brunei – No informationCambodia – NBC – silent; SECC – 3 yearsIndonesia – All audits – 1 yr; listed Cos- 3 yrs Laos – Not stated in any legislationMalaysia -Audit partners -2 yrs, bank’s audit partner-5yrsMyanmar – No informationPhilippines – Audit Partners – 2 yrsSingapore – listed Cos/KAPs for PIEs/other audits – 2 yrsThailand – Audit Partners for PIEs – 2 yrsVietnam – No information

6.c Cooling Period 52

Brunei – Brunei D. Accounting Standard CouncilCambodia – National Accounting CouncilIndonesia – IAI Financial Accounting Standards BoardLaos – Accounting Dept of the MoFMalaysia – Malaysian Accounting Standards BoardMyanmar – MACPhilippines–Phil Financial Reporting Standards CouncilSingapore –Accounting Standards CouncilThailand – Thai Acctg Standards Setting CommitteeVietnam – Ministry of Finance

7. Accounting Standard Setting 53

Brunei – IFRS for PIEs since 2014Cambodia – CIFRS for listed, insurance since 2012Indonesia –IFAS based on 2009 IFRS, excl IAS 1,41,15Laos - IFRS for listed Cos starts 2017Malaysia –MFRS for listed Cos, banks,insuranceMyanmar –MFRS for public Cos, financial institutionsPhilippines – PFRS large/publicly accountable entitiesSingapore – SFRS for Cos Thailand – TFRS based on 2013 IFRS for PAEsVietnam – VAS developed based on IFRS

8.a. IFRS 54

Brunei – Brunei GAAP for Non-PIEsCambodia – CFRS for SMEs beginning 2010Indonesia –SAK-ETAP for Non-PIEsLaos – LFRS for SMEs beginning 2017Malaysia – M’sian Private Entity Reporting StandardsMyanmar – MFRS for SMEs adopted Philippines – PFRs for SMEs beginning 2010Singapore –SFRS for qualifying SMEsThailand - TFRS for SMEs to start in 2017Vietnam – IFRS for SMEs not adopted yet

8.b. IFRS for SMEs 55

Brunei – No legally required auditing standards; Cambodia – CISA which is the same as ISAIndonesia –SPAP which is fully consistent with ISALaos – would promulgate in line with ISAMalaysia- ISA adopted as MASAMyanmar –ISA adopted as MSAPhilippines – ISA adopted as PASSingapore – ISA adopted as SSAThailand –ISA translated into Thai with no modificationVietnam –VSA closely aligned with ISA

9. Auditing Standard Setting 56

Brunei – PAOC/planned for 2014Cambodia –QCC of KICPAA/adopted ISQC in 2010Indonesia- PPJAP of Supreme Audit Board Lao PDR – MoF in-charge of QARMalaysia –MIA Practice Review Program for Non-PIEs

auditors; Audit Oversight Board for PIEs auditorsMyanmar - Compliance Review CommitteePhilippines – BOA; with court injunction deferring QARSingapore- ACRA for PIEs/ISCA for non-PIEsThailand – SEC for listed/FAP for non-listedVietnam – A Dept of MOF implements QAR

10. Oversight /Quality Assurance 57

Are we ready for it?

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What are the realities?

ASEAN today is 10 very different countries at very different stages of development: High Income economies – Singapore & Brunei Upper Middle Income economies – Malaysia,

Thailand and Indonesia Lower Middle Income economies – Philippines,

Vietnam,Laos and Cambodia Low Income economy - Myanmar

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Starting Business in ASEAN2014

3 Singapore16 Malaysia

85 Lao PDR91 Thailand

109 Vietnam137 Brunei Darussalem

170 Philippines175 Indonesia

184 Cambodia 189 Myanmar

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Starting Business in ASEAN2015

6 Singapore13 Malaysia

85 Lao PDR75 Thailand

125 Vietnam137 Brunei Darussalem

161 Philippines155 Indonesia

184 Cambodia 189 Myanmar

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Doing Business in ASEAN2014

1 Singapore6 Malaysia

18 Thailand59 Brunei Darussalam

99 Vietnam108 Philippines

120 Indonesia137 Cambodia

159 Lao PDR182 Myanmar

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Doing Business in ASEAN2015

1 Singapore18 Malaysia

26 Thailand59 Brunei Darussalam

78 Vietnam95 Philippines

114 Indonesia137 Cambodia

159 Lao PDR182 Myanmar

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Realities in Starting a Business2014

It takes an average of:. 3 procedures & 2 & 1/2 days - Singapore 3 procedures & 6 days - Malaysia 4 procedures & 17 & 1/2days Thailand 10 procedures & 34 days – Vietnam 15 procedures & 35 days - Philippines 10 procedures & 48 days - Indonesia 6 procedures & 92 days - Laos

From the Speech of Dato Timothy Ong June 6, 2014 in AIM Manila

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Global Competitiveness Market2014-2015 (144 Economies)

Singapore 2Malaysia 20Thailand 31Indonesia 34Philippines 52Vietnam 68Lao PDR 93Cambodia 95Myanmar 134Brunei Data Not Available

Source: World Economic Forum

65 Wobbly start. Wobbly still?“In September 2004, Statistically Speaking featured the article, “The ASEAN – Where Do We Stand? Or Wobble?”. It reported that the Philippines was somewhere in the middle among the 10 ASEAN countries for most indicators – “about kulelat among the original ASEAN members (Indonesia, PhilippinesThailand, Malaysia, and Singapore but still generally ahead of the Plus Five (Myanmar, Brunei, Lao PDR Cambodia and Vietnam).” The said article promised that, “six years from now, we will find out if we could walk straight or if our feet continued to wobble and our minds had started to boggle.”

Borrowed from Dr. Ben Diokno’s ppt presentation

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Wobblier after 8 years

• In 2012, after 8 years, Dr. Romulo A. Virola, the former Secretary-General of the National Statistical Coordination Board wrote: “Statistics show that there are more bad news than good news! Eight years ago, we wrote how wobbly we were compared to our ASEAN neighbors. Sadly, based on the statistics presented, the Philippines appears to be even more wobbly.”

Note: 2014 FDI figure for Phil is very encouragingBorrowed from Dr. Ben Diokno’s ppt presentation

67 Foreign Direct Investments Trend

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Foreign Direct Investment

Source: ASEAN Foreign Direct Investment Database as of 26 May, 2015

Singapore Indonesia Thailand Malaysia Vietnam Philippine

2012 60,980 19,138 10,699 9,400 8,368 2,797

2013 56,138 18,443 12,999 12,297 8,900 3,859

2014 72,098 22,276 11,538 10,714 9,200 6,200

Share 53% 16.4% 8.5% 7.9% 6.8% 4.6%

69 Foreign Direct Investment

Source: ASEAN Foreign Direct Investment Database as of 26 May, 2015

Philippines Cambodia Myanmar Laos PDR Brunei

2012 2,797 1557 1,354 294 865

2013 3,859 1,274 2,621 427 726

2014 6,200 1,726 946 913 568

Share 4.6% 1.3% 0.7% 0.7% 0.4%

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Per Capita GDPPurchasing Power Parity

Source: All figures are from IMF 2014 published in April 2015

Country Rank in the World Rank in ASEAN GDP (Per Capita)Indonesia 102 4 $ 10,641Thailand 82 3 $14,354Malaysia 51 2 $24,654Singapore 3 1 $82,762Philippines 119 5 $ 6,962Vietnam 126 6 $ 5,635

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The Challenges . . .

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Challenges for ASEAN

Implementation of MRAs

Harmonization of qualifications of professionals through AQRF

Commitment to achieve the free flow of trade in services by 2015 as outlined in the AEC Blueprint.

Need to enhance its effort on services facilitation and cooperation activities, to complement the liberalization efforts.

73 Challenges for AFA

Providing assistance to ASEAN member bodies on capacity building of accountants through exchange of knowledge and best practices

Coordinate with each member bodies to update the information contained in (1) The AFA’s Easy Guide to Setting up

Accountancy Practices in ASEAN Countries; and (2) The 2014 AFA – World Bank Report on

Accountancy and Auditing Practices in ASEAN

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Accelerating compliance with IFAC SMOs Providing quality CPD seminars and

workshops for accountants Bringing back the public confidence in the

audited financial statements through effective implementation of QAR

Advocacy to push reforms in respective government to improve the ranking in doing business

Challenges for AFA Members75

Challenges for AFA Member-BodiesCompliance with IFAC SMOs (as of Oct 6, 2014)

Brunei Darussalam (BICPA) Oct 2013Cambodia (KICPAA) Aug 2014Indonesia (IAI) May 2013Laos PDR (LICPA) In progressMalaysia (MIA ) Nov 2013Myanmar (MICPA) In progressPhilippines (PICPA) Jan 2014Singapore (ISCA) Jul 2012Thailand (FAP) Feb 2014Vietnam (VAA) Nov 2012

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Member Bodies Regular Provisional  Junior Student Corporate/  Total

Nodies Members Members  Members Members Firms 

BICPA 49 9  58

IAI 17920 3703 109  21732

KICPAA 155 20  34 49  258

LICPA 176 176

MIA 30,994 30,994

MICPA 595 595

PICPA 22,072 22072

ISCA 28069 28069

FAP  64635 64635

VAA 8,000 8,000

TOAL 173465 29  3703 34 158  177389

Membership of Member BodiesAs of October 1,201477

Membership of AFA Member BodiesAs of October 1, 2014

BICPA - 58

IAI- 21,732

KICPAA - 258

LICPA - 176

MIA - 30,994

MICPA - 595

PICPA 22,072

ISCA - 28,869

FAP- 64,635

VAA - 6,000

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Harmonizing and streamlining of processes and procedures

Improving of standing in the World Bank Survey in starting and doing business in the country

Improving standing in FDI Confidence Index

For BOA - operationalizing the Monitoring Counciland providing guidance in raising the bar for Filipino CPAs to become globally competitive

Challenges for Government79

Proper implementation of the international accounting standards

Effective implementation of the International Auditing Standards in the conduct of audit

Compliance with CPD, using the PICPA CPD Competency Framework based on IEAS

Production of credible and reliable FSs Levelling up to become globally competititve

Challenges for Accountants80

ait.ecaguirre@gmail.com

End of

Presentation

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