RESTRICTED
WORLD TRADE S/WPPS/W/1
27June1995
ORGANIZATION
(95-1760)
Working Party onProfessional Services
FUNCTIONS OFTHE WORKING PARTY ONPROFESSIONAL SERVICES
INRELATION TOACCOUNTANCY
Note bytheSecretariat
1. TheDecision onProfessional Services, which wasadopted bytheCouncil forTrade inServices
on1March1995(S/L/3),constitutesthemandateoftheWorkingPartyonProfessionalServices(WPPS).
Asstated intheDecision andconfirmed bytheCouncil forTrade inServices, theaccountancy sector
istobedealtwithasamatter ofpriority. Thisnotesetsoutthebackground totheDecision, describes
work undertaken onthesubject inother organizations andbriefly reviews thecontent ofspecific
commitments inthissector. Asubsequent note(S/WPPS/W/2) willdescribe themaincharacteristics
oftheaccountancy sector anditsregulation atdomestic andinternational level.
2. During theUruguay Round, itwasagreed thatdueaccount would havetobetaken ofthe
implications ofapplying theevolving framework principles toparticular sectors. Asaresult, negotiators
examinedthequestionofwhetherprofessionalservicesingeneral-andaccountancyservicesinparticular
-required special rulestosupplement orinterpret theframework. Inthefinalanalysis, theydidnot
consider thattheprofessional services sector asawhole hadanyparticular characteristics which would
require thedevelopment ofacomprehensive sectoral annex orthatsubsectors suchasaccounting services
warranted anyparticular typeofannotation. Itmaybehelpful tonotehowever thattheUnited States
proposed anAnnex onProfessional Accountancy Services1which dealtwithsome oftheissues raised
intheDecision. TheAnnex setsoutguidelines andprocedures forfacilitating theinternational provision
ofaccountancy services through themutual recognition ofprofessional qualifications andcompetence,
focusingontheimportanceofbasingtheprocessonobjectivequalifications.Furthermore,theprovisions
oftheAnnex recognize theimportance ofthewider useofinternational standards asthebasis ofa
common language forfinancial reporting.
I. THE DECISION ONPROFESSIONAL SERVICES
3. Itisclearthatmostifnotallservice industries, andparticularly theprofessions, willalways
besubject toregulation; protection ofthepublic interest requires themaintenance ofadequate standards
ofcompetence andintegrity. Theobjective ofArticle VI:4oftheGATS istoensure thatregulations
applied toservices intheformofqualification requirements andprocedures, technical standards, and
licensing requirements donotconstitute unnecessary barriers totrade. Ingeneral these measures are
1SeeMTN.GNS/PROF/W/2 of2October 1990S/WPPS/W/1
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tobedistinguished fromlimitations onmarket access andnational treatment which would bescheduled
under Articles XVIandXVII respectively.
4. TheCouncil isrequired byArticle VI:4todevelop anynecessary disciplines toensure that
measures ofthekinds stipulated are,interalia,
- based onobjective andtransparent criteria, suchascompetence andtheability tosupply
theservice;
- notmore burdensome thannecessary toensure thequality oftheservice;
- inthecaseoflicensing procedures, notinthemselves arestriction onthesupply of
theservice.
Thisrequirement applies toservices ofallkinds, notmerely toprofessional services. However, in
recognitionoftheimpactofsuchregulatorymeasuresontradeinprofessionalservices,Ministersdecided
thatthework programme under Article VI:4should beputintoeffect immediately inaWorking Party
onProfessional Services andthatpriority should begiven totheelaboration ofmultilateral disciplines
intheaccountancy sector. Thisprofession isalready more integrated ontheinternational levelthan
most, notwithstanding theexistence ofimportant domestic regulatory structures andinternational trade
inaccountancy services shows considerable potential forgrowth.
5. Themandate oftheWPPS asdefined intheDecision istwo-fold. Itisrequired todevelop
thedisciplines described inArticle VI:4forprofessional services ingeneral. Butasamatter ofpriority
ithastomake recommendations fortheelaboration ofmultilateral disciplines intheaccountancy sector.
6. Fortheaccountancy sector, thesecond paragraph oftheDecision requires theWPPS to
concentrate onthree main areas:
- Thedevelopmentofmultilateraldisciplinestoensurethatdomesticregulationsarebased
onobjective andtransparent criteria andarenotburdensome thannecessary;
- Theuseofinternational standards, encouraging co-operation withrelevant international
organizations;
- Theestablishment ofguidelines fortherecognition ofqualifications, inorder tomeet
therequirements ofArticle VI:6;
1. Domestic regulation
7. Inthefieldofdomestic regulations, Article VI:4requires development ofmultilateral disciplines
inrelation toqualification requirements andprocedures, technical standards andlicensing requirements.
Theintent istoensure thatsuchregulations areconsistent withthecriteria setoutinparagraph 5above.
Itisnotrequired thatdomestic regulations should beharmonized, although itisclear thatthewide
variation among themisapotential impediment tothegrowth oftrade. Thepurpose oftheregulation
wasingeneral toguarantee acertain minimum levelofquality oftheservice andhence toprotect the
interestsofthepublicinthatcountry.Nationalrulesandregulationswerenaturallyconceivedtoorganize
whatwasapurely national market: people witharegulated qualification obtained locally werelicensed
topractice certain regulated activities within theboundaries ofthecountry. Thegrowth ofinternational
trade, particularly thecross-border provision ofservices, andtheadvent oftheGATS makes itnecessary
forregulators toseethepublic interest andtheconcept ofregulation itself inawider context.
8. Qualification requirements andprocedures could giverisetodiscrimination andtradebarriers
intwoways. First, interms ofaccess totheranks oftheprofession within agiven jurisdiction,
discriminatory requirements -e.g.failure torecognize educational qualifications acquired elsewhereS/WPPS/W/1
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-might make itmore difficult forforeigners thanfornationals toacquire thenecessary qualifications,
though itseems unlikely thatthisisacommon oramajor barrier. Secondly, there canbemarked
differences between countries inthelevelofqualification needed topractice aservice. Suchdifferences
oftenresult frompurely objective factors, suchasthedegree ofcomplexity oftheeconomy inquestion
orthenature anddifficulty ofthefunctions required ofaccountants under national law. Differences
innational lawsortraditions mayalsomean thatthesamefunction isassigned tosubstantially different
professions indifferent countries, orthatahigher levelofqualification isrequired topractice itin
onecountry thaninanother. Theconsequence maybetomake itdifficult forpotential foreign suppliers
tomeettherequirements. Moreover, theaccountancy profession inanyparticular country isfrequently
divided inso-called tiers, according tothelevel ofqualification andcompetence oftheirrespective
members, firsttieraccountants being thebestones. These differences arematerialized withdifferent
professional titles. However, thissegmentation oftheprofession varies according tocountries, making
comparison difficult. Transparency andobjectivity ofcriteria areclearly relevant here,asistheWorking
Party'sremit toensure thatregulations arenotmore burdensome thannecessary.
9. Technical standards define theruleswhich havetobefollowed byprofessionals when offering
aparticular service. These havebeendeveloped inmostjurisdictions toguarantee aconsistent level
ofquality intheservice throughout agiven market. Intheaccountancy profession, technical standards
define, forexample, thewayanormally diligent auditor should perform anaudit, i.e.which types
ofchecks heshould perform according tothetypeofcompany (industrial companies, banks, small-
andmedium-sized enterprises, etc.), thewaywork should bedocumented, etc.Inagiven market place,
different levels ofstandards canco-exist forthesame service, allowing clients tochoose. Asaresult,
theissue oftechnical standards willbedifficult todissociate from theprevious one,astheactual
segmentation ofthemarket isgenerally organized around themixQualification/Technical standards:
topoftherangeservicesareofferedbyfirst-tieraccountantsorauditors,andconverselylesssophisticated
orcomplete services canbesupplied aswellbyprofessionals ofalower qualification. Differences
between countries arenumerous interms oftechnical standards andsegmentation ofthemarket which
makes therecognition ofservices ortheidentification ofcorresponding services between jurisdictions
arealproblem.
10. Licensing requirements. Allcountries require alicence forprofessionals topractice regulated
activitiesintheirterritory.Licensingrequirementscovereverythingimposedbythecompetentauthorities
ofagiven jurisdiction tolicence aprofessional. Inaddition tothequalification requirements already
covered inparagraph 9above, thelicensing requirements mayinclude, according tothecountry
concernednationalityrequirements,establishmentorresidencyrequirements,absenceofcriminalrecords,
thetaking ofanoath, subscription toaprofessional indemnity insurance, etc.Licensing procedures
entail allthestepsthathavetobetaken toapply forthelicence. OneofthetasksoftheWorking Party
willbetoexamine theirduration andtransparency. They alsoentail other elements falling under
Article VIandwhich maycertainly giverisetoproblems given themagnitude ofthedifferences existing
between countries. Licensing requirements might bethemain impediment forparticular modes of
supply. Forexample, cross-border supply oftheservice ishardly possible ifcommercial establishment
isacondition forgranting alicence, butitmight bedifficult toallow foreigners topractice without
commercial establishment inthecountry ifnationals arerequired tohavesuchanestablishment.
2. International standards
11. TheWorking Party'smandate recognizes thecontribution thatthewider useofinternational
standards canmake tofurthering liberalization andimproving transparency. Itisrequired toencourage
co-operation withrelevant international organizations, asdefined inthefootnote 3Article VI:5(b):
"The term'relevant international organizations 'refers tointernational bodies whose membership is
opentotherelevant bodies ofatleastallmembers oftheWTO."S/WPPS/W/1
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12. Intheaccountancysector,internationalstandardshavesofarbeendevelopedbytwointernational
bodies, theInternational Federation ofAccountants (IFAC) andtheInternational Accounting Standards
Committee (IASC). Thework ofthese bodies overthelasttwodecades indeveloping internationally
recognized standards isdescribed inS/WPPS/W/2. These standards arewidely used, butonlyona
voluntary basis, asneither IFAC norIASC hasanydirect authority overaparticular jurisdiction.
National authorities inallWTO Member countries havepreserved theirprerogative ofspecifying
regulations andstandards atthenational level. TheuseofIFAC orIASC standards frequently depends
ontheirendorsement byorincorporation intothecorresponding national standards.
3. Guidelines fortherecognition ofqualifications
13. TheDecision requires theWorking Party onProfessional Services toestablish guidelines for
therecognition ofqualifications, asforeseen inArticle VII.Suchguidelines should facilitate theeffective
application ofArticle VI:6which requires eachMember toprovide foradequate procedures toverify
thecompetence ofprofessionals ofanyotherMember. Theimplementation ofArticle VI:6byMembers
should alsofacilitate theeffective application ofArticle VIIandtherecognition ofprofessional
qualifications. Verifying thecompetence offoreign professionals generally means toreview the
qualification andlicensing requirements which havebeenimposed onthemintheirhome jurisdiction
tobesatisfied thattheforeigner isofanequivalent levelofcompetence compared totherequirements
ofthehostcountry, andtoidentify themain material differences thatmight havetobecompensated
forbetween therequirements inthetwojurisdictions. Asshown indocument S/WPPS/W/2, the
completion ofthisprocess canfollow several forms: recognition ofprofessional titles, recognition
ofeducation orrecognition oflicences topractice.
II. WORK DONE ELSEWHERE
14. Some international organizations andtheaccountancy profession itself havelongworked on
issues ofrelevance tothemandate oftheWorking Party onProfessional Services, which could make
useoftheresults ofthatwork. Among those ofmostrelevance totheWorking Party onProfessional
Services aretheproductions ofISAR (Inter-governmental Working Group ofExperts onInternational
Standards ofAccounting andReporting, which works under theumbrella ofUNCTAD), theOECD
andIFAC. Theacademic literature might alsobeasource ofinformation, eveniftheinformation
ismore difficult toobtain inthatdomain, intheabsence ofasingle outstanding authority.
1. IFAC
15. IFAC(117memberbodiesin84countries,representingover1.2millionprofessionalaccountants)
isafederation ofnational professional bodies. Ithasproduced asetofinternational standards onauditing
(ISAs), ethics, education, financial andmanagement accounting andthepublic sector. Being the
organization representing those primarily interested intheliberalization oftheaccountancy sector, it
haslongworked onthese issues. Oneofitsmost recent projects, started in1994, related tothe
implementation oftheGATS forprofessional services isasurvey onissues related tointernational
tradeinaccountancy services. Thesurvey isbased onaquestionnaire addressed toallIFAC Member
Bodies, which covers thefollowing items:
A. General background information
B. Scope ofregulation
C. Practice authorization including requirements forobtaining qualification
D. Treatment offirms
E. Obtaining professional workS/WPPS/W/1
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F. Independence
G. Immigration control
H. Practice inforeign jurisdictions
I. Dialogue withWTO representative
J. Anticipated changes inregulation
16. Sofar,49Member Bodies representing 38countries haveresponded tothequestionnaire.
Thegeographic coverage oftheresponses isasfollows:
Africa -Middle East 6
America 6
Asia 10
Europe 16
Alltypes ofeconomies arerepresented inthesample, betheydeveloped, developing orintransition.
17. Thesummary ofresponses willbemade available totheWTO Secretariat intheform ofa
paper data-base, andcanbeusedbytheWorking Party onProfessional Services foritsownpurposes.
2. OECD
18. TheOrganizationforEconomicCo-operationandDevelopment,throughitsGrouponAccounting
Standards, hasperformed foritsmembers atasksimilar towhathasjustbeenexplained forISAR.
Among themostrelevant results ofthatwork isapublication ofMarch 1988 onthequalification of
auditors.
19. Inaddition, theOECD 'sCommittee onCapital Movements andInvisible Transactions (CMIT)
hasbeenworking forsome timeontheliberalization ofinternational trade inprofessional services.
Itpublished in1985 astudy oncompetition policy andtheprofessions which covered anumber of
regulated liberal professions, including theaccountancy profession, andamong other things identified
themainbarriers tointernational practice oftheseprofessions. More recently, itorganized inSeptember
1994aworkshoponprofessionalserviceswhichaddressedseveralprofessions,includingtheaccountancy
profession. Theproceedings oftheworkshop wereclearly placed intheperspective ofimplementation
oftheGATS andoftheDecision onProfessional Services. Asecond gathering oftheworkshop is
scheduled forOctober 1995 toaddress fivemain issues:
(1) AcategorizedinventoryofmeasuresaffectingtradeinprofessionalservicesintheOECD
area.
(2) Therelationship between professions/professional titles, activities andregulation in
OECD countries.
(3) Theeconomic roleandsignificance ofinternational trade intheprofessional services
sector.
(4) Competition policy andliberalization oftrade inprofessional services.
(5) Consumer interest andliberalization oftrade inprofessional services.S/WPPS/W/1
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3. ISAR
20. TheInter-governmental Working Group ofExperts onInternational Standards ofAccounting
andReporting (ISAR) wasestablished in1982 byaresolution oftheEconomic andSocial Council
oftheUnited Nations (ECOSOC). Themain objective oftheGroup istopromote theinternational
harmonization ofcorporate accounting andreporting practices. They havenotdealtwithauditing.
21. Itsmembership isopen toanyStates members oftheUnited Nations Conference onTrade
andDevelopment (UNCTAD), with observers from inter-governmental andnon-governmental
organizations such astheEuropean Union, theOrganization forEconomic Co-operation and
Development, theInternational Chamber ofCommerce, theInternational Confederation ofFreeTrade
Unions, theInternational Accounting Standards Committee andtheInternational Federation of
Accountants. TheGroup isserviced bytheUNCTAD 'sDivision onTransnational Corporations and
Investments. ISAR reports totheCommission onInternational Investment andTransnational
Corporations, asubsidiary body oftheUNCTAD Trade andDevelopment Board.
22. Theobjectives oftheISAR group are:
- toserve asaninternational body fortheconsideration ofissues ofaccounting and
reporting bytransnational corporations;
- tomake apositive contribution tonational andregional standard-setting; and
- totakeintoaccount theinterests ofdeveloping countries inthefieldofinformation
disclosure.
23. Thegroup isconsequently notastandard-setting body. Itreviews, analyses andpromotes work
donebyothers inthatfieldinorder toestablish "best practice" methods orguidelines fordisclosure
offinancial andnon-financial information.
24. Since thebeginning ofthe90's,ISAR hasenlarged thescope ofitswork, andaddressed
accountants 'education andtraining. Thisresulted in1993 inapublication reviewing qualification
requirements foraccountants inthevarious regions oftheworld.2
25. Among thevarious projects currently sponsored byISAR, onecould beofgreat relevance
tothework oftheWorking Party onProfessional Services. Itconsists ofasurvey ofthereasons why
countries donotcomply withInternational Accounting Standards, inorder toestablish thestatus of
recognition reached bythestandards ofIASC (IASC hasthesame membership basisasIFAC andhas
asitsmainobjective thedevelopment andpublication oftheInternational Accounting Standards -IASs.).
Theconclusions ofthesurvey ought tobeavailable in1996 andwillbeusedbyIASC andIOSCO
(International Organization ofSecurities Commissions).
26. ISAR hasindicated thatitwould bemore thanhappy tocontribute tothework oftheWorking
Party onProfessional Services andtomake available anymaterials thatthegroup would feelappropriate.
2SeeInternational Accounting andReporting Issues -1993 Review (UNCTAD)S/WPPS/W/1
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III. SPECIFIC COMMITMENTS INTHE ACCOUNTING SECTOR
27. Todatethere arefifty-one schedules (counting theECasone)bycurrent andpending WTO
Members which contain binding commitments intheaccounting sector. These havebeencirculated
intheinformal Secretariat noteentitled "Compilation ofSpecific Commitments -Accounting, Auditing
andBook-keeping Services" of15June1995.
28. AllbutfiveofthescheduleshaveusedtheCPCclassificationformakingcommitmentsaccording
tothethree sub-sectors asfollows:
Accounting
Compilation offinancial statements services (CPC 86213)
Compilation services offinancial statements from information provided bytheclient. No
assurances regarding theaccuracy oftheresulting statements areprovided. Preparation services
ofbusiness taxreturns, when provided asabundle withthepreparation offinancial statements
forasingle fee,areclassified here.
Exclusion: Business taxpreparation services, when provided asseparate services, areclassified
insub-class 86302 (Business taxpreparation andreview services).
Other accountancy services (CPC 86219)
Other accounting services suchasattestations, valuations, preparation services ofproforma
statements, etc.
Auditing
Financial auditing services (CPC 86211)
Examination services oftheaccounting records andothersupporting evidence ofanorganization
forthepurpose ofexpressing anopinion astowhether financial statements oftheorganization
present fairly itsposition asatagiven dateandtheresults ofitsoperations fortheperiod ended
onthatdateinaccordance withgenerally accepted accounting principles.
Accounting review services (CPC 86212)
Reviewing services ofannual andinterim financial statements andotheraccounting information.
Thescope ofareview islessthanthatofanauditandtherefore thelevelofassurance provided
islower.
Bookkeeping
Bookkeeping services, except taxreturns (CPC 86220)
Bookkeeping services consisting inclassifying andrecording business transactions interms
ofmoney orsome unitofmeasurement inthebooks ofaccount.
Exclusion:Bookkeepingservicesrelatedtotaxreturnsareclassifiedinsubclass86302(Business
taxpreparation andreview services).
29. Withrespect tothecommitments made inaccounting theoverall picture canbecharacterized
asfollows:
- Forthetwomodes ofsupply where thesupplier isnotpresent inthemarket (cross-
border supply andconsumption-abroad) thereisasignificant amount ofbinding withoutS/WPPS/W/1
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limitations. However, insome cases themodes areunbound reflecting thefactthat
acommercial presence isthepreferred mode ofsupply.
- Withrespect tothecommercial present mode, more thanhalfoftheschedules contain
sector-specific limitations. These relate torequirements regarding:
thepreferred legalentity (e.g.soleproprietorship/partnership);
limitations onequity participation, citizenship orresidency requirements for
accreditation (e.g.condition ofnationality foraccounting orauditing services);
insome cases prohibition oftheuseofthename oftheforeign company.
- With respect topresence ofnatural persons there arenosector-specific limitations.
Concessions regarding themovement ofpersons havebeenmade horizontally andcover
commitments forintra-corporate transferees (managers, executives andspecialists) as
wellasquantitative limits onthetotalnumber offoreigners thatcansupply services.S/WPPS/W/1
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Thefollowing tableindicates foreachofthethree sub-sectors oftheaccountancy sector, i.e.
accounting, auditing andbook-keeping, thecountries which havescheduled aspecific commitment.
Country Accounting Auditing Book-keeping Total
Antigua andBarbuda X X X 3
Antilles (Netherlands) X X X 3
Argentina X X X 3
Aruba (Netherlands) X X X 3
Australia X X X 3
Austria X X X 3
Brazil X X X 3
Brunei Darussalam X 1
Canada X X X 3
Chile X 2
China X X X 3
Colombia X X X 2
Cuba X X 2
Cyprus X X X 3
Czech Republic X X X 3
Dominican Republic X X 2
ElSalvador X X 2
European Communities andtheir
Member States (12)X X X 3
Finland X 1
Gambia X X X 3
Guyana X X X 3
Hong Kong X X X 3
Hungary X X X 3
Iceland X X X 3
Israel X X X 1
Jamaica X X X 3
Japan X X X 3
Korea, Republic of X X X 3
Lesotho X X X 1
Liechtenstein X X X 3
Malawi X X 2
Malaysia X X X 3
Maldives X X X 3
Mexico X X X 3S/WPPS/W/1
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Country Accounting Auditing Book-keeping Total
Morocco X X X 3
NewZealand X X X 3
Norway X X X 3
Peru X X X 3
Poland 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
South Africa X X X 1
Sweden X X X 2
Switzerland X X X 2
Thailand X X X 3
Turkey X X X 3
United States ofAmerica X X X 3
Venezuela X X 2
Zambia X X X 3
Total 48 50 43