What it means
IFAC was founded in 1977, and its members are professional accountancy bodies rather than individual accountants. Each member body represents accountants in its own country, and through IFAC they share ideas and agree on common expectations for education, ethics and quality.
The headquarters are in New York. IFAC does not write all accounting rules.
It supports independent standard-setting boards, each with its own role, including one for auditing and assurance, one for the ethics code for professional accountants, and one for public sector accounting. Each board sets its standards in public, after consulting with regulators, investors and the profession.
The boards' standards matter far beyond the profession. Auditors in many countries use the international auditing standards as the basis for their national rules, and companies and investors rely on those audits when deciding whether financial statements can be trusted.
An audit carried out to a recognised standard gives a lender or shareholder far more comfort than an unstructured review. It is worth separating IFAC from the body that sets international financial reporting standards.
The rules companies follow when preparing their accounts come from a different organisation, so IFAC is closer to the profession's global voice and the home of audit, ethics and public sector standards. The organisation also publishes guidance, runs research and advocates for the profession with governments and international institutions.
For businesses it supplies the reference points for what good audit and professional conduct should look like. A finance director can use those reference points when drafting audit tender documents or setting the scope of an internal audit function.
The nuance is that IFAC standards are not automatically law. Each country decides how to adopt them, which means requirements for auditors and accountants can still differ from place to place.
In practice
Real-world examples.
Example
A growing manufacturer chooses an audit firm in a new country. Its finance director asks whether the firm applies international auditing standards. Knowing that those standards are supported by IFAC helps her compare auditors across countries. She still asks for references and sample reports before signing the engagement letter.
Example
A government finance department moves from cash-based reporting to accrual accounting for public bodies. It uses international public sector accounting standards as its guide, since they show the full cost of services and the size of the government's obligations. This allows its reports to be compared with those of other governments. Lenders and donors can then read its accounts with the same expectations they apply elsewhere.
Example
A professional accountancy body in a developing country applies to join the federation. To qualify, it commits to meeting a set of membership obligations on education, quality assurance and ethics. The commitment raises standards for its members, and over time employers and clients in that country come to expect the same quality from every accountant carrying the body's designation.
Case study
Seen in the real world.
This is an illustrative story about a fictional group, Harlow International Holdings, which owned subsidiaries in nine countries. Each subsidiary's local auditor applied different practices, and the group's finance director found it hard to compare audit quality or to trust some of the reports.
She asked each local auditor to confirm that its work followed international auditing standards and the international ethics code. She also required that the audit firms belong to bodies that were members of IFAC. Two firms that could not meet the requirement were replaced at the next appointment cycle.
Over two years the audits became more consistent, and the group's lenders gained more confidence in the combined accounts. The illustrative result was a lower borrowing margin on the group's main loan, helped by the improved credibility of its reporting. The finance director now includes an audit quality review in the annual board pack.
Watch out
Common mistakes.
- Believing IFAC sets IFRS. International financial reporting standards come from a different body, while IFAC supports standards for auditing, ethics and the public sector.
- Assuming individual accountants join IFAC. Its members are professional bodies, and accountants belong to those bodies, which in turn take part in IFAC's work on their behalf.
- Treating its standards as binding everywhere. They apply only to the extent a country or professional body adopts them.
Questions
People also ask.
What is IFAC's purpose?
To serve the public interest by strengthening the profession and supporting high-quality standards for audit, ethics and public sector accounting.
Is IFAC a regulator?
No. It is a membership organisation, and it has no legal power to enforce rules on firms or individuals, although national regulators often adopt the standards its boards produce.
Why do finance managers need to know about it?
Because the audits, ethics rules and public sector standards it supports shape how reliable the financial statements they rely on really are.
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