Corporate Transparency facing challenges in developing countries

Developing countries seeking foreign investment to boost economic growth should ensure that domestic firms abide by international standards for accounting and corporate transparency, UNCTAD’s Deputy Secretary-General told a meeting of 300 experts. In addition, nine countries gave a report of their experiences with piloting the new Accounting Development Toolkit developed by UNCTAD.

Speaking at the opening plenary of the twenty-ninth session of the Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR), UNCTAD Deputy Secretary-General Petko Draganov said that “many developing countries lack some of the fundamental aspects of an accounting infrastructure. Institutional requirements, regulatory requirements, and human resource requirements go unmet. The resulting negative impact on transparency puts a brake on the attraction of investment and the promotion of growth in many of these countries.”

UNCTAD annually hosts the three-day ISAR meeting. Experts from around the world are using the gathering to debate different approaches for overcoming the challenges that developing countries face in building the regulatory and institutional foundations for high-quality corporate reporting.

“We now operate in a world economy that transcends national borders, where foreign direct investment accounts for a huge proportion of overall investment,” said Michel Prada, Chairman of the Board of Trustees of the International Financial Reporting Standards (IFRS) Foundation, in a keynote address on Wednesday. “In this respect, the benefit of a universal accounting language is clear: investors need high-quality information to make informed decisions.”

However, he went on to say that many developing countries had encountered significant difficulties in properly applying international accounting standards, and that this was largely due to a minimal or even largely non-existent accounting infrastructure.

Experts at the meeting stressed that greater corporate transparency could enhance the predictability and stability of business transactions, thereby creating a stronger enabling environment for investment.

Better data also meant more informed policymaking, they noted. The financial and non-financial information provided in corporate reports formed the basis for national economic data. It also contributed to the broader social and environmental indicators that government policymakers relied on. Furthermore, citing this year’s United Nations Rio+20 Earth Summit, James Zhan, Director of UNCTAD’s Division on Investment and Enterprise, said that corporate reporting relating to environmental sustainability was “a key issue”. At the summit, he said, member States had called on all relevant stakeholders to work with the United Nations system to develop models for best practice and to facilitate action on the implementation of sustainability reporting.

To help countries improve accounting and corporate reporting, UNCTAD has rolled out the Accounting Development Toolkit (ADT). Tatiana Krylova, Head of UNCTAD’s Enterprise Branch, told the meeting that “its main objective is to assist policymakers in strengthening accounting infrastructure for achieving high-quality corporate reporting, including through measuring progress in a comparative and consistent manner”. Representatives of the nine countries that had recently tested the ADT said that it was effective in helping government and corporate officials decide how to proceed in making further improvements.

Just prior to this year’s ISAR session, an Accounting Education Forum – organized jointly by UNCTAD–ISAR and the IFRS Foundation – was held at the Palais des Nations in Geneva. As part of the Forum, experts from the International Accounting Standards Board (IASB) conducted a hands-on workshop demonstrating how to use a framework-based approach to teach the standards.