SPEECH BY THE HON. LAWRENCE GONZI, ACTING PRIME MINISTER AND MINISTER FOR SOCIAL POLICY AT THE NATIONAL CONFERENCE "SHAPING OUR PROFESSION" ORGANISED BY THE MALTA INSTITUTE OF ACCOUNTANTS

Mr. Fujinuma

Mr. Cachia
Ladies and Gentlemen:

Thank you for giving me the opportunity to address you today – I consider it to be a unique opportunity which needs to be maximised by all concerned. The theme you have chosen for this conference is, in itself, an invitation to adopt a forward looking approach. It is a challenge which invites the accountancy professionals to respond to the demands of a changing economy. But it is also an invitation to us all to recognise the need to re-engineer all those processes which form part of our responsibility, in whatever area we happen to be involved.

Shaping our profession is a theme which is based on a very important premise. It means that we need to question the way we have worked so far. It means that the electronic revolution which has taken place over the past ten to fifteen years, requires us to revisit the way we have operated, the methods we have used for so many years, and the solutions that we have identified in the past. In a few words, it is a call for change where change is needed.

I suspect that it is obvious to all of you, that as Deputy Prime Minister and Minister for Social Policy, my perspective is inevitably focused on the public sector. It is a perspective built on the fact that the Ministry for Social Policy accounts for one third of the total government expenditure. It is also a sector which is today at the centre of our attention because it deals with the needs of a sizeable chunk of our population which is on the increase, and because it needs to guarantee the sustainability of the high levels of social security which we have introduced over an long number of years.

This is why, in my opinion, modern international principles of public financial governance are steadily and rapidly emulating the constantly changing methodologies practised within the private sector which are in turn being driven by the dire changes being experienced in supply-chain management, e-commerce and global financial markets. Many governments throughout the world are recognising the effectiveness of ingraining sustainable and transparent financial management practices to holistically control their financial deficits.

This does not transform governments into incorporated organisations with the objective of maximising their profits. But it certainly means adopting a somewhat similar approach with the aim of serving the public with high quality services, ensuring probity and rigour, while delivering value-added – in other words, an approach which guarantees a better distribution of the nation's wealth.

It is therefore natural that the role played by the Accountancy profession within the global business framework influences the ways governments manage their national economies. In this context, may I recognise the fact that the global accountancy profession through the sterling work of the International Federation of Accountants and the International Accounting Standards Committee have established themselves as world class regulators both in the private sector as well as the wider and perhaps more complicated public sector.

Malta is no exception to this new environment. The national public financial management structures are obviously not alien to other government systems. We too are facing a financial deficit – a challenge which has been positioned at the top end of our political and economic agenda. Likewise, my government has long recognised that Malta must implement an innovative set of forward looking legislation to enable our country meet the rigours and challenges of the global competitive environment, as well as to identify ourselves within the European context as a full member of the European Union.

In this context, I am pleased to state that the bottom line results which we have achieved over the past 48 months prove in no uncertain manner that the inherited structural deficit has been reversed to pre-1997 levels. Indeed we are ahead of our targets as set out by the five-year structural deficit-reduction plan announced by the Minister of Finance during the 1998 Budget presentation.

How are we managing this? Past gurus of accounting have always preached that "cash is the lifeblood of an organisation" and governments are no exception. In Malta's case, this principle bears a blaring significance. Malta's public management structures and systems have borrowed from accounting's two basic dicta - the proper control of debtors, specifically, the collection of revenue (VAT, Income Tax, Customs, NI Contributions, etc) and true effective controls of public recurrent expenditure (notably Social Security, Health and Education, and Public Sector financing). The application of these generally accepted accounting principles has realised better management and control in national governance.

Successful public sector financial management depends upon a strong and qualitative national accounting body of professionals to effectively advice, support and where possible participate in seeing through this mass process of change that my government has set for the national agenda. This partnership commences at the very top strategic levels. The Accountancy Board, within the Ministry of Finance, which is regulated by the Accountancy Profession Act, is responsible for ensuring the best quality professionals in accounting and auditing for the service of the public.

The Malta Institute of Accountants (MIA) is not only represented substantially on the Board, but my government appreciates the very valid contributions made by the MIA representatives for the effective development of the accountancy profession in the Maltese islands. I just quote two examples to validate this comment - firstly, through MIA efforts, the Accountancy Board has published a national Code of Ethics for all accountants and auditors practising in Malta and Gozo, thereby ensuring that the ethical environment is completely harmonised between MIA members and other accounting professionals who are not members of the local Institute; secondly, very soon, the Accountancy Board will be publishing, through a legal instrument, rules governing Continued Professional Education (CPE) requirements for all accountants and auditors, thus ensuring that the Maltese profession is continually trained to meet the needs of an ever changing global environment.

The link of close co-operation with the MIA and government does not end here. Government frequently feels the need to source the advice of the Institute when upgrading or changing some particular sectorial legislation falling within its fiscal, financial and public accounting purviews. In doing so government would be attuning itself to the problems and weaknesses in the system as experienced by those working in the field.

Of course, I must also mention the varying circumstances when government agencies require independent and unbiased reviews and opinions on its major activities and projects. Appreciating full well the high quality services provided by members of the local accountancy profession, as backed by the international support and experience of the top six global accounting firms, the engagements are made for three simple but truly effective reasons: professionalism, integrity and independence.

At this point, I must not fail to mention the public financial reform that is happening throughout the public service. To sustain my government's commitment to better public governance in the transparent management of the national resources, this year we have embarked on two very important initiatives - the introduction of accruals accounting within public structures by 2003-4 and the metamorphosis of the public internal audit function into a truly effective tool in the control of public revenue and expenditure. Even within this ambit, the local accounting profession, in the form of the accountancy firms, provide us with crucial consultancy and professional services which are necessary for us to realise my government's objectives.

For example, the accruals framework of Malta's future public sector accounting is being modelled on the International Public Sector Accounting Standards (IPSAS) and pronouncements of the Public Sector Committee of the International Federation of Accountants (IFAC), proving for the umpteenth time, my government's commitment to consolidate the link between accounting rules and public financial management.

On the other hand, our public internal auditors, will be regulated by auditing standards and guidelines of the International Auditing Practices Committee (IAPC) of the international federation (IFAC), besides, of course, international internal audit ethics and practices. Here, I must express my government's complete satisfaction at the valid contribution Malta made on its internal audit function re-engineering, at the third Contact Group meeting of the National Financial Controllers of EU member and applicant states. This contribution generated keen interest of public service professionals of a number of EU applicant and member countries, participating at the meeting. In fact, many sought to obtain more details, to identify how their own national audit systems could effectively emulate the Maltese model's advantages.

The next steps in this public financial management reform will be the introduction of performance management systems within the public financial planning framework, and how international concepts and practices in the field of ex-post performance auditing could contribute to realise this reform phase. Of course, this will take place within the current partnership framework between government and the local accounting profession.

All this change demands that within government structures there exists a trained cadre of professional accountants, who will ensure the delivery of objectives specified by this innovative environment. The number of students and members of the local Malta Institute of Accountants within government's financial control units in public agencies is continually experiencing a positive increasing trend. This means that in the near future, government will be able to source a strong number of qualitative public sector accountants, greatly enhancing public services delivery.

Your convention here today is intended to discuss the challenges which lie ahead for the shaping of the accountancy profession. Surely, one of the most significant and possibly overwhelming challenges to the accounting profession and the financial legislators alike is the emergence of e-commerce and the cascading effects which follow from the internalization of trade and commerce and the increasing reliance on web-based transactions and financial solutions. Though many might dismiss e-commerce talk as pure hype, others are insisting that e-commerce might be re-writing the rules of accounting, demanding new forms of fiscal regulation and creating loopholes in domestic tax and revenue mechanisms.

Shaping your profession therefore entails the commitment to look ahead and pre-empt the requirements of a future highly differentiated and increasingly virtual global financial environment with your feet firmly anchored into experience.

Ladies and Gentlemen,

Allow me to conclude by wishing you the best of success for this national conference. I am confident that through this experience, the Malta Institute of Accountants will forge itself more deeply within the international accounting community, with a resultant quality leap in the its contribution in partnership with government.

Thank you.