INTRODUCTION At the request of the Council for Trade in Services, the Secretariat has prepared this Note on accountancy services as part of the information exchange programme. As with previous sectoral notes by the Secretariat, this Note is not intended to be exhaustive, but rather to serve as a background to discussions by Council Members. Accountancy is an important element in the production of both physical goods and other services. Perhaps even more important is accountancy's essential role in respect to the implementation and enforcement of prudential requirements and other financial regulatory measures. Another consideration is that the range of activities undertaken by accountancy firms is wide and expanding: as the European Commission publication Panorama of EU Industry 1997 has observed, "There is no strict correspondence between accountancy services and the field of activity of the accounting profession" ¹ . This is due to the fact that the skills developed by accountancy professionals in order to produce, process, analyse or audit financial information can also be used for other purposes. The result has been a major expansion into such areas as taxation services and management consulting. Perhaps the most significant issue in respect to international trade in accountancy services is the widespread nature of local qualification and licensing requirements, both in regard to individual practitioners and as conditions for the ownership and management of firms. The response of the largest accountancy entities, notably the "Big Five" (as described below), has been to form international networks of local firms in an attempt to overcome the effects of these and other restrictive national regulations. Such networks, however, may not necessarily be the most efficient management and organizational structures for the delivery of accountancy services. In addition, small and medium-size firms are much less likely to possess the necessary resources to create similar structures, and therefore may be placed at a comparative disadvantage. Individual accountancy professionals are likely to be even more disadvantaged, especially those from developing countries. The usage of international standards in accountancy has recently intensified as another major issue. In October 1998, for example, the World Bank issued a request to the "Big Five" to stop putting their names to accounts published in the Asian economies, unless such accounts are prepared using international financial reporting standards. ² The Financial Times has observed that a consequence of the World Bank request may well be to accelerate the development and usage of international accounting and auditing standards. In addition, the request is expected to put increased pressure on regulatory authorities to modify current practices. ¹ P. 25/25. Major sources for this Note also include the following documentation of the WTO Working Party on Professional Services (WPPS): Functions of the Working Party on Professional Services in Relation to Accountancy, Note by the Secretariat, 27 June 1995 (S/WPPS/W/1); The Accountancy Sector, Note by the Secretariat, 27 June 1995 (S/WPPS/W/2); and Synthesis of the Responses to the Questionnaire on the Accountancy Sector, Note by the Secretariat, 5 May 1997 (S/WPPS/W/11). During the Uruguay Round negotiations, the Secretariat released a Note entitled "Trade in Professional Services" (MTN.GNS/W/67, dated 25 August 1989) ³. The Note focused on licensed professions, notably accounting, law, architecture and medicine, with the objective of identifying the core issues of relevance to these sectors. Topics addressed by the Note included: activities comprising professional services; forms of trade; the motivations and objectives for rules and regulations; descriptions of typical regulations and measures; and considerations related to the application of major GATS-related concepts and principles. W/67 makes the observation that "The issue of barriers to trade in professional services concerns, for example, the question of whether or not certain types of regulation are necessary to protect consumers or whether and to what extent such regulations unnecessarily discriminate against foreigners".⁴ DESCRIPTION OF THE SECTOR Accounting, auditing and bookkeeping services are part of subsector "A." of "1. Business Services" of the Services Sectoral Classification List (MTN.GNS/W/120). The corresponding classification number under the United Nations' "Provisional Central Product Classification"(CPC) is 862. There are no further sub-categories provided for under W/120. Under the Provisional CPC, however, the category of "Accounting, auditing and bookkeeping services" (CPC 862) is further sub-divided, as follows: Accounting and auditing services (CPC 8621)

• Financial auditing services (CPC 86211)
  
  Examination services of the accounting records and other supporting evidence of an organization for the purpose of expressing an opinion as to whether financial statements of the organization present fairly its position as at a given date and the results of its operations for the period ended on that date in accordance with generally accepted accounting principles.
  
  
• Accounting review services (CPC 86212)
  
  Reviewing services of annual and interim financial statements and other accounting information. The scope of a review is less than that of an audit and therefore the level of assurance provided is lower
  
  
• Compilation of financial statements services (CPC 86213)
  
  Compilation services of financial statements from information provided by the client. No assurances regarding the accuracy of the resulting statements are provided. Preparation services of business tax returns, when provided as a bundle with the preparation of financial statements for a single fee, are classified here.
  
  Exclusion: Business tax preparation services, when provided as separate services, are classified in sub-class 86302 (Business tax preparation and review services).
  
  
• Other accounting services (CPC 86219)
  
  Other accounting services such as attestations, valuations, preparation services of pro forma statements, etc.

²Financial Times, 19 October, 1998, p .1.

³ In the context of the Uruguay Round, the United States proposed an "Annex on Professional Accounting Services" (MTN.GNS/PROF/W/2, dated 2 October 1990) which would have set out guidelines and procedures for facilitating the international provision of accountancy services through the mutual recognition of professional qualifications. The proposed Annex also recognized the importance of the wider user of international standards.

⁴P. 9. W/67 also states, "Among the principal broad concerns which motivate regulations and policies affecting professional services are consumer protection, promotion of domestic business and local employment, the need to manage foreign exchange and the preservation of cultural identity" (p.8). Bookkeeping services, except tax returns (CPC 8622)

• Bookkeeping services, except tax returns (CPC 86220)
  
  Bookkeeping services consisting in classifying and recording business transactions in terms of money or some unit of measurement in the books of account.
  
  Exclusion: Bookkeeping services related to tax returns are classified in subclass 86302 (Business tax preparation and review services).

The adoption of CPC Rev. 1 would bring little substantive change in regard to accounting, auditing and bookkeeping services, as noted in the Secretariat document, "Detailed Analysis of the Modifications Brought about by the Revision of the Central Product Classification: Professional Services", dated 27 March 1998 (S/CSC/W/6/Add.10, p. 4). The revisions for accountancy were limited to minor changes in definition and wording.

As observed above, the range of services offered by accountants is wide and growing and, "As a consequence, some may argue that a distinction should be made, in certain cases, between accountancy services and services provided by accountancy firms. Others would argue that if a service is provided by an accountancy firm it is, by definition, an accountancy service" ⁵. As a result, the domain of accountancy services has been defined differently in different countries, and the boundaries with other regulated professions (e.g. the legal profession with respect to taxation) or non-regulated services providers (e.g. management consultants) are therefore not defined consistently from country to country. ECONOMIC IMPORTANCE OF THE SECTOR AND ITS MAIN ECONOMIC FEATURES While accounting and auditing services constitute the core activities of accountancy firms, a wide range of additional services may also be offered, most notably merger audits, insolvency services, tax advice, investment services and management consulting . ⁶ The internal expertise developed by the profession in regard to information technology has resulted in accountancy firms becoming among the world's largest suppliers of such consultancy services. Demand for accountancy services results from both mandatory legal requirements, such as financial reporting, as well as clients seeking advice on various issues, for example taxation. Although individuals are also consumers of accountancy services, the majority of work involves services to enterprises. ⁵S/WPPS/W/2, p. 7

⁶Given the focus of the GATS on professional services, this Note (as with the documents of the WPPS) concerns itself primarily with the public practice of accountancy, i.e. the provision of professional accountancy services to clients, either individually by sole practitioners, or collectively by firms of accountants. As noted in Panorama of EU Industry 1997 (p. 25/29), "Obviously, the size of the profession in a given country does not in any way reflect that of its economy". This is the result of different national practices for organizing the profession. In many countries, for example, the profession is defined to include all those who have received a specified level of training, regardless of whether they are in public practice, employed within the accounting division of a corporation, working in another profession, etc. Other countries, however, might define the accountancy profession to strictly include only those actually in public practice. Within Europe, for example, membership in the professional bodies which make up the Federation of European Accountants (Fédération des Experts Comptables Européens) totals about 350,000. About 40% of these actually work in the accountancy services sector, with most of the remaining 60% practising in industry, trade, education or the public sector. [TABLE 1] In the case of the United States, the American Institute of Certified Public Accountants lists a total membership of approximately 330,000, with about 40% also in public accountancy ⁷. [TABLE 2] For the reasons discussed above, data on accountancy industry revenues are often not available on a regional or global basis. In the case of U.S. statistics, total accounting and management consulting revenue at the 100 leading U.S. firms was US$21.2 billion in 1996, a 14% increase over the previous year. Of this amount, the "Big Six" (now the "Big Five" as noted below) generated 83% of the total. U.S firms were also estimated to account for about 60% of the global industry's world-wide revenue in these two areas. Significantly, for the 100 largest accountancy firms, management consulting has replaced accounting-relating activities as the most important area of activity, accounting for the largest single source of revenue (39%) and the highest rate of annual growth in 1996 (24%) ⁸. Among the reasons for the relative weakness of accountancy services is the downward pressure on fee income in this area, resulting from increased competitive pressures between accountancy firms as well as increased use of in-house accountancy services among large corporations. Unlike most professional services, accountancy in most countries is largely practiced at the level of firms or partnerships rather than individuals, with small-scale firms predominant ⁹. The largest professional services firms are found in the accountancy field, with a few very large-scale entities, collectively known as the "Big Five", involving thousands of professionals and very prominent internationally. (The "Big Five" firms are: Arthur Andersen, operating in 78 countries with a staff of 58,000; Deloitte Touche Tohmatsu, in 132 countries with over 82,000 employees; Ernst & Young International, also in 132 countries with over 82,000 employees; KPMG International, located in 155 countries with over 85,000 employees; and PricewaterhouseCoopers, recently formed by the merger of the former Price Waterhouse and Coopers & Lybrand, in 152 countries with over 140,000 employees.) The higher level of recent mergers within the profession reflects a belief in the competitive advantages of being able to offer clients a wider range of services, together with wider geographic coverage.

As noted in W/2, "the internationalization of accountancy firms has mirrored that of the clients they serve ¹⁰". The practice of international accountancy activities potentially includes the following: ⁷U.S. accounting/audit firms employed an estimated 250,000 accountants in 1992, compared with about 1.15 million accountants in private industry. The EC accounting industry was estimated to have about 200,000 certified accountants in 1993, with another 215,000 employed by industry and government (OECD Report on Regulatory Reform, Volume I, Paris, 1997, p. 144).

⁸The strength of U.S. firms is said to derive from the global expansion of their U.S. multinational client firms, which typically continue to use the same accountancy firm overseas as domestically (United States International Trade Commission, Recent Trends in U.S. Services Trade, Washington, D.C., May 1998, pp. 3/39-41).

⁹Within the EC, for example, only Italy continues to prohibit collective entities. Partnerships have been the legal form traditionally used by most accountancy firms, especially in the Anglo-Saxon world.

¹⁰p. 18. The forms of possible international transactions in accountancy are detailed below in [TABLE 3]. W/2 also observes that a variety of factors of production need to be permitted to circulate freely in order for international transactions in accountancy services to take place to their fullest extent (p. 19).

• Providing services domestically to domestic clients on foreign issues (e.g. advice on foreign taxation);
  
  
• Providing services abroad to domestic clients on foreign issues (e.g. purchase investigations of potential foreign acquisitions);
  
  
• Providing services abroad to foreign permanent establishments of domestic clients (e.g. performing the locally-required statutory audit of a foreign subsidiary);
  
  
• Undertaking the foreign element of services provided domestically to domestic clients (e.g. audit a foreign subsidiary for the purposes of issuing a domestic audit report on the consolidated financial statements of a domestic parent company);
  
  
• Providing services abroad to foreign clients on domestic issues (e.g. advice on domestic taxation to a foreign company);
  
  
• Providing services domestically to domestic permanent establishments of foreign clients (e.g. performing the statutory audit of a domestic subsidiary of a foreign parent company);
  
  
• Undertaking the domestic element of services provided abroad to foreign clients (e.g. audit a domestic subsidiary for the purposes of issuing a foreign audit report on the consolidated financial statements of a foreign parent company); and
  
  
• Providing services abroad to foreign clients on foreign issues (e.g. acting as liquidator for an insolvent foreign company).

As noted in an earlier Secretariat document, A Review of Statistics on Trade Flows in Services (S/C/W/27, dated 10 November 1997), statistics for many services sectors are generally unavailable, especially data on the trade of foreign affiliates. For accountancy, the situation is further complicated by the lack of common definitions of accountancy activities, the wide range of additional services (as noted above) currently available from accountancy firms, and the fact that accountancy statistics are often included together with data for other activities. In the case of the U.S. International Trade Commission (ITC) publication, Recent Trends in U.S. Services Trade, the data on accountancy include information on management consulting and public relations. In this regard, the ITC notes that "affiliate transactions of accounting and management consulting services far exceed cross-border transactions due to the difficulty of providing such services across borders" ¹¹. According to the ITC, cross-border trade of accounting and management consulting services resulted in a U.S. surplus of US$969 million in 1996, compared to a surplus of just over US$1 billion in 1995; in 1995, U.S: affiliate transactions in accounting and management consulting services resulted a trade surplus of US$3.4 billion, unchanged from 1994. ¹¹United States International Trade Commission, Recent Trends in U.S. Services Trade, Washington, D.C., May 1998, pp. 3/36-37. Although the accountancy profession has expanded internationally in order to follow clients, the structures of the largest accountancy entities are completely unlike those of their multinational clients. Rather than parent firm/subsidiary relationships, world-wide networks have been formed between independent, domestically owned firms in various countries. ¹² This is the result of extensive domestic regulation (as discussed in Part IV), which makes it impossible to have unified ownership, management and control on an international scale.¹³ While such networks take various forms, they are generally characterized by avoidance of the need to transfer between countries those resources, especially natural persons, most subject to regulatory restrictions. The most common feature is the presence of fixed arrangements for the referral of work or clients across borders, from one member of the network to another. The referrals might be mandatory or voluntary, and might involve fee-sharing arrangements. Consequently, the maintenance of high-level quality controls across the network has become an essential requirement. ¹⁴ REGULATORY STRUCTURES AND RELEVANT TRADE RESTRICTIONS The regulatory structure of the accountancy profession is described at length in WTO documents W/2 and W/11. The latter document is a synthesis of responses to the questionnaire on accountancy distributed by the WTO Working Party on Professional Services (WPPS), together with additional information provided by the OECD, UNCTAD and the International Federation of Accountants (IFAC). As noted in numerous publications concerning the profession, accountancy has been highly regulated for a long time in most countries. W/1, for example, observes that "It is clear that most if not all service industries, and particularly the professions, will always be subject to regulation; protection of the public interest requires the maintenance of adequate standards of competence and integrity" ¹⁵ Of greatest concern, however, is the fact that the profession is often regulated in different ways between (and sometimes even within) nations.¹⁶ The scope of regulation includes both the service provider and the service itself, extending from educational requirements for accountancy professionals to licensing requirements for firms and to the setting of mandatory standards for performing the service (e.g. auditing procedures) and for the final product itself (e.g. financial reports). ¹²According to Panorama of EU Industry 1997, small and medium-sized accountancy firms "are at present developing regional networks in order to achieve national or even international coverage of the market" (p.25/28).

¹³Consequently, the types of international linkages developed by the big international networks of accountancy firms are structured in a manner similar to franchising: i.e. "independent local firms exploit in common a single commercial name and voluntarily agree to apply the same methodology and standards, to submit themselves to mutual scrutiny and quality control, to contribute (financially and technically) to the development and implementation of these tools, etc. Profit sharing can also exist but remains the exception rather than the rule" (W/11, pp. 15-16).

¹⁴As noted in Panorama of EU Industry 1997, "One of their main characteristics is their ability to provide the same service with the same level of quality irrespective of the part of the world where their clients are located" (p. 25/28).

¹⁵P.1. Noting, however, that many existing rules and regulations were originally created in respect to purely national markets, W/1 also states, "The growth of international trade, particularly the cross-border provision of services, and the advent of the GATS makes it necessary for regulators to see the public interest and the concept of regulation itself in a wider context" (p.2).

¹⁶As observed by the European Commission, "Accounting and auditing services are subject to a high degree of regulation in the EU. The forms of regulation are both numerous and complex, and vary from country to country despite the attempts at Community harmonization". Consequently, "Nearly 40 years after the signing of the Treaty of Rome, there are still fifteen national markets for the accountancy profession and accountancy services in the EU" (Panorama of EU Industry 1997, pp. 25/26 and 25/30. The statutory verification of accounts is in fact the only service provided by the accountancy profession that is regulated in the same way in all the Member States of the EU. Both the scope and form of accountancy regulation differ widely between countries. In some cases, certain accountancy activities may be regulated in one country and not another ¹⁷. In other cases, activities which may be performed by accountants in one country, such as taxation services or management consultancy, may be legally restricted in other countries to entirely separate professions. In most countries, regulatory powers are shared between public and private authorities (typically professional associations), but the balance between them differs widely between nations. In addition, the accountancy profession in some countries is regulated at the national level, and at the sub-national level in others. Professional accountancy associations ranges from strictly government bodies to completely private organizations. Their activities may encompass any or all of a wide range of functions, including examinations and authorizations, education and training, professional standards, disciplinary measures, quality control, providing various membership services and representing the profession. Various examples of regulatory forms are noted in W/2, i.e.: (i) Countries where a professional title is attributed by the State and membership of the relevant professional body is mandatory; (ii) Countries where a professional title is attributed by the State, membership of one professional body is mandatory and membership of other bodies is voluntary; (iii) Countries where a professional title is attributed by the State or a public authority and membership of a professional body is voluntary; and (iv) Countries where a professional title is attributed by a given professional body, membership of which is mandatory, with membership of other existing bodies being purely voluntary. In addition to professional associations at the domestic level, accountancy associations have long been active at the regional and, more recently, international levels. The two world-wide organizations for the accountancy profession are the International Federation of Accountants (IFAC) and the International Accounting Standards Committee (IASC). Both are non-governmental bodies, with IFAC involved in a wide range of professional issues and IASC focused on the harmonization of financial reporting. Membership in IFAC is open to national-level accountancy bodies, and this automatically includes membership in IASC. There are currently 143 IFAC member bodies from 103 countries, representing 2 million accountants. ¹⁸ Domestic restrictions placed on the legal forms for the practice of accountancy activities are typically intended to ensure liability and prevent conflicts of interest. According to the 29 questionnaire responses as reported in W/11 (which include a mix of developed and developing countries), incorporation is prohibited and partnership is the only collective form of practice allowed in 40% of respondents. ¹⁹ W/2 notes that, "For a firm to be considered as a member of the accountancy profession, it is generally required that at least the majority of the capital and the voting rights be in the hands of locally qualified accountants, and that the majority of the directors or members of the management body be locally qualified accountants" ²⁰. Many countries, however, actually impose even stricter requirements in terms of ownership and control of management: 70% of questionnaire responses indicated that firms must be controlled by locally licensed accountancy professionals and, in most cases, the required level of control was well in excess of a simple majority. The consequence of such requirements is that very few foreign professionals or professional firms will have the possibility of holding a local license ²¹. The OECD has questioned these requirements, stating "While there may be consumer protection arguments in tying ownership to a certain degree of professional qualification, the question is whether requirements on an investor/owner need to be as strict as requirements to practice". ^{22 17}Among the information provided to the WPPS by the International Federation of Accountants (IFAC) was the IFAC Questionnaire on Issues Related to International Trade in Accountancy Services: Summary of Responses, dated 1 July 1995. The information provided included data on: regulation of the accountancy profession; authorization to practice and qualifications; treatment of firms; regulation of international transactions; obtaining professional work; professional independence; and cross-border movement of professionals.

¹⁸An example at the regional level is the Eastern, Central and Southern African Federation of Accountants (ESCAFA). Additional information on IFAC and IASC is provided in W/2 (pp. 13-14 and pp. 29-32).

¹⁹P. 13. The list of WPPS questionnaire respondents is given as an Annex to W/11. In accordance with WTO practice, the questionnaire treats the European Communities as a single entity.

²⁰P. 10. W/11 notes that the ownership of a firm can be determined according to either the nationality of the owner, or on the basis of the origin of the licence held (foreigners holding local licenses are considered as foreign in this respect). When the foreign/domestic distinction is made on the basis of nationality, and on this basis only, investment and ownership are GATS Article XVI issues. When the distinction is made on the basis of a local qualification or licence of the owner, they are Article VI issues (p.13).

²¹pp. 10, 15. In some cases, shareholding in professional firms was restricted to individuals.

²²Communication from the OECD: Work in the Area of Professional Services (S/WPPS/W/4), 14 November, p. 12. Annexes to W/4 present data from the OECD's categorized inventory of measures affecting trade in professional services, including accountancy. Preference, however, is given in this Note to data from the WPPS questionnaire, which includes a greater range of data from developing countries.

For about 25% of the questionnaire respondents, the licensing of firms was not possible, either because professional firms were not regulated, or because the practice of regulated accountancy activities was not permitted by firms or partnerships, but restricted to individual practitioners. For the remaining respondents, the registration of firms was required, in addition to any licensing requirements for the members of the firm. In some cases, managers of accountancy firms are also required to be nationals of the country concerned; in the majority of cases, however, Members require all managers, or a least a majority of them, to be locally qualified and licensed. The objective of such licenses is typically to ensure that the firm and its employees respect the relevant laws and regulations. In regard to documentation requirements, in the absence of a recognition agreement, foreign documentation is typically not accepted when applying for a license. In a few cases, the hiring of local professionals by foreign firms is directly restricted or prohibited. In a large number of other cases, ethical requirements frequently have the same effect, stating that, when practising regulated activities, accountants be either self-employed or employed by another licensed professional or professional firm. Qualification requirements differ both between and within WTO Members, depending on the national regulatory regime and type of qualification desired (i.e. accountant, auditor, etc.). In some cases, there may be alternatives for achieving the same qualification, e.g. trade-offs between the level of training and experience required. Requirements typically include three to five years of higher (post-secondary) education (and in some cases graduate education as well), as well as a specified period of practical experience. About one-half of the respondents to the WPPS questionnaire also require a professional examination as a final step. ²³ In addition to qualification requirements, licensing is typically also required for individual professionals, whether sole practitioners or members of a firm or partnership. Requirements generally include proof of education and training, proof that the applicant does not have a criminal record, etc. and, in the majority of cases, proof of membership in the relevant professional organization. In many cases, the relevant professional organization is actually the designated licensing authority. For about 25% of the questionnaire respondents, proof of professional indemnity insurance was also required. Other common requirements, also in about 25 to 30 per cent of the cases, were residency and citizenship requirements, respectively. ²³ The potential trade restrictiveness of such requirements is probably greatest for developing country professionals. As noted in MTN.GNS/W/67 (p.15), written in the context of the Uruguay Round negotiations, "An important consideration in respect of the ability of developing country professionals to gain access to developed country markets relates to qualification requirements and the recognition of educational and/or professional competence". General impediments to trade in accountancy services include: restrictions on international payments; restrictions on the mobility of personnel; impediments to technology and information transfer; "Buy National" public procurement practices; differential taxation treatment/double taxation; monopolies; and subsidies. [TABLE 4] The most common specific impediments affecting accountancy are: nationality requirements; residence/establishment requirements; professional certification/entry requirements; compartmentalization/scope of practice limitations/ incompatibilities; restrictions on advertising, solicitation and fee-setting; quantitative restrictions on the provision of services; differences in accounting, auditing and other standards; restrictions on business structures; and restrictions on international relationships/use of firm names. Nationality requirements in respect to accountancy are generally being removed. ²⁴ Residency requirements, however, remain widespread, and definitions vary between countries. W/11 observes that, in principle, an individual has only one residency, while the number of potential domiciles is unlimited. Further distinctions can be made between permanent residency, prior residency and temporary residency requirements. ²⁵ Only a small number of countries have neither establishment nor residency requirements. Most countries do, however, allow individuals and firms to have professional establishment in more than one country. In regard to the cross-border movement of accountancy professionals, few questionnaire respondents indicated the existence of procedures to rapidly facilitate the temporary entry and stay of foreign professionals for the purpose of supplying accountancy services. A significant amount of the regulation affecting accountancy professionals and services is defined at sub-national level in federal states. Consequently, inter-state or provincial trade in accountancy services can potentially meet with problems similar to those of inter-country trade. The international agreements reached with federal countries will therefore have varying effects according to the degree of autonomy of the sub-national structures regulating the accountancy sector and, conversely, to the level of authority of the federal structures on sub-national ones. In the case of the United States, for example, W/2 notes that "federal structures have hardly any authority on the States' institutions in the accountancy sector". ²⁶ The restrictions imposed on investment and ownership, typically in the form of local licensing requirements as described above, restrict the international accountancy networks to their present franchise-like form, as described in Part III. Approximately 20% of questionnaire respondents have indicated they maintain restrictions on the use of international or foreign names by professionals or professional firms. In some cases this involved seeking authorization for their use, in only two cases was the use of such names actually forbidden. Certain restrictions on advertising, marketing and solicitation of new clients by professionals have traditionally been imposed under codes of ethics; such codes of ethics have been developed both at the domestic and international levels. According to the questionnaire responses, these restrictions are actually limited in their effect. Guidelines or other restrictions in regard to fee-setting are present in some countries. Some countries also have prohibitions in place against such practices as predatory pricing, "low-balling" and contingency fees. ²⁴Nationality and citizenship requirements would normally come under the scope of GATS Article XVI, i.e. market access, as they represent "zero quotas" on foreign professionals.

²⁵W/11 also observes that residency and prior residency requirements could pertain to Article XVII if they modify conditions of competition in favour of nationals, but could alternatively pertain to Article VI.4 if they treat nationals and foreigners identically (de facto and de jure) (p.17).

²⁶P. 10. In addition to market access and national treatment issues, the lack of mutual recognition agreements (MRAs) or other recognition procedures can act as a major barrier to international trade. As noted above, local qualifications are typically required in respect to firm ownership and management; therefore, the lack of MRAs or other recognition procedures affects not only the movement of natural persons, but also investment opportunities. An important observation in this respect is that MRAs, while potentially increasing the circulation of professionals, do not in themselves promote regulatory competition between jurisdictions or lead to the removal of trade barriers. At the regional level, the European Communities has instituted procedures for the mutual recognition of diplomas. In almost all cases, however, an aptitude test is still required to cover the specificities of national law, which may help explain why the use of the provision has been minimal to date. ²⁷ Under the North American Free Trade Agreement (NAFTA), professionals from NAFTA countries are required to be given non-discriminatory access to certification and licensing procedures. In this connection, the three countries concerned have agreed to try to eliminate all residency and citizenship requirements for certification to practice accountancy. At the bilateral level, the American Institute of Certified Public Accountants, the U.S. National Association of State Boards of Accountancy and the Canadian Institute of Chartered Accountants in 1991 concluded an agreement on "Principles of Reciprocity". The agreement was a recommendation to state boards of accountancy in the United States and provincial authorities in Canada to permit an abbreviated examination intended to demonstrate satisfactory knowledge of relevant local and national legislation, standards and practices in the jurisdiction being entered. The recommendation was subsequently adopted by 36 U.S. states (as of June 1996). The Protocol on Trade in Services to the Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA), concluded in July 1996, establishes as a basic principle the right of a person registered to practice an occupation in one of the two countries to practice an equivalent occupation in the other country. ²⁸ Notifications to the WTO, under GATS Article VII:4, of recognition procedures which specifically mention accountancy have been relatively infrequent. They include: the March 1996 notification of Macau (S/C/N/15), describing procedures permitting the registration of accountants and auditors who are members of foreign professional associations; the February 1997 notification of the United States (S/C/N/51), concerning the 1991 U.S.-Canadian agreement (as described above); and the March 1998 notifications of Australia and the United States (S/C/N/67 and N/68), describing A Principles Agreement for Reciprocal Licensing signed in October 1996. The latter agreement involves Australia, on a national basis, and U.S. states on an individual basis (19 as of July 1997). Considering the major effect that national qualification requirements have on trade in accountancy services, the number of MRAs on accountancy notified to the WTO to date appears to be remarkably small. In a chapter entitled "Regulatory Reform and Professional Business Services", the 1997 OECD Report on Regulatory Reform makes a number of recommendations relevant to the accountancy sector. ²⁹ The recommendations are for (OECD) Member countries to: examine rules and practices to increase economic competition; make competition law applicable to professional services, subject to safeguards to ensure consumer protection; have regulatory bodies revise restrictions on entry, affiliation, and business form if they unnecessarily prevent entry, including entry by foreign professionals; ³⁰ give consideration to the development on a multilateral basis of core requirements regulating access to services and activities; and implement the earlier policy recommendations of the Third OECD Workshop on Professional Services, held in February 1997.^{31 27}As observed in Panorama of EU Industry 1997, "The general system was not in fact designed in order to remove the existing barriers, but was meant to help accountants to establish themselves abroad in spite of these barriers" (p. 25/26).

²⁸The ANZCERTA Agreement was notified to the WTO under GATS Article V.7 (S/C/N/66, dated 21 October 1997).

²⁹OECD Report on Regulatory Reform, Volume I, Paris, 1997, pp. 141-142.

³⁰The report states that alternative rules, such as insurance, bonding, client restitution funds, or disciplinary control at the point of original licensing, could provide adequate protection while permitting greater competition.

³¹The recommendations of the Third Workshop are: (a) professional service providers should be free to choose the form of establishment, including incorporation, on a national treatment basis, as alternative measures are available to safeguard personal liability, accountability and independence of professional service providers; (b) restrictions on partnership of foreign professionals with locally licensed professionals should be removed, starting with the right to temporary associations for specific projects; (c) restrictions on market access based on nationality and prior residence requirements should be removed; (d) restrictions on foreign participation in ownership of professional services firms should be reviewed and relaxed; (e) local presence requirements should be reviewed and relaxed subject to availability of professional liability guarantees or other mechanisms for client protection; and (f) national regulatory bodies should cooperate to promote recognition of foreign qualifications and competence and develop arrangements for upholding ethical standards. The accountancy profession historically has played a prominent role in the development of domestic accounting standards. In recent years, however, public bodies have played a increasing role in the development process. At the international level many countries, as noted in W/2 (and updated in a March 1998 informal Secretariat Note), have voluntarily integrated international standards into their (often mandatory) domestic standards. ³² The task of creating international standards is essentially divided between the International Accounting Standards Committee (IASC) and the International Federation of Accountants (IFAC), with IASC responsible for accounting standards and IFAC responsible for auditing, educational and ethical standards. The International Organization of Securities Commissions (IOSCO), comprising securities-market regulators worldwide, is looking to IASC to provide mutually acceptable international accounting standards (IASs) which are acceptable for multinational securities listings and other international offerings. ³³ IOSCO and IASC earlier announced a multi-year programme to accelerate the standards-setting process, with revisions to the IASs expected to be completed by the first part of 1999, after which IOSCO will decide whether to grant its approval. The decision of IOSCO, while non-binding upon its members, is likely to strongly influence the approval processes of national regulators. ³²Although international standards for accountancy are widely used at the national level, to date this has only occurred on an individual, voluntary basis. Panorama of EU Industry 1997 also notes, "The fact that there have long been professional standards in this sector has hitherto considerable limited the real impact of ISO 9000 Standard as regards accountancy services" (p. 25/28).

³³A number of stock exchanges already require or allowed foreign issuers to present financial statements in accordance with IASs and, as a result, private companies are increasingly reporting that their financial statements conform with IASs.

Questions for further discussion:

• Is there a need to gather further information on the industry: for example, should Members who have not yet responded to the accountancy questionnaire be encouraged to do so?
  
  
• Are the needs of small and medium-sized accountancy firms, and those of individual accountancy professionals, adequately addressed by the existing regulatory structures?
  
  
• Is further work needed in respect of mutual recognition of agreements, for example to ensure that there is no unjustified discrimination against third countries, as required by Article VII:3?
  
  
• Should Members give consideration to discussion of the recent OECD recommendations on professional services, perhaps in the context of the Working Party on Professional Services?

NEGOTIATIONS ON ACCOUNTANCY SERVICES AND EXISTING COMMITMENTS UNDER THE GATS³⁴ As of November 1998, 56 Members (counting the European Community 12 as one) have made commitments under the category of accounting, auditing and bookkeeping services. ³⁵ Regarding other areas of interest to accountancy firms, 62 Members made commitments on computer and related services and 51 on management consulting, but only 34 Members made commitments on taxation services. Within the Professional Services subsector, the accountancy category ranks second to engineering services (with 58 commitments), and ahead of architectural services (50 commitments). [TABLE 5] Of the 56 Members, 49 referred to CPC classifications in their schedule. In some cases, however, the use of CPC classifications by Members is somewhat unclear. For example, in one case a Member has listed only "accounting" in its schedule, while indicating the general CPC category (CPC 862, which covers accounting, auditing and bookkeeping services) in parentheses. Another Member has listed "accounting and bookkeeping services" while also using the CPC 862 category in parentheses. A third Member has listed only "accounting" as a subcategory, while specifying in parentheses CPC categories that also include bookkeeping. By mode of supply, for accountancy as a whole, the greatest level of full market access (i.e. "None" specified in the schedule to indicate no restrictions) is granted for consumption abroad, i.e. by 41% of the Members making commitments. ³⁶ [TABLE 6] The greatest use of "Unbound" in the schedules (i.e. to indicate no commitments) is in respect to cross-border supply (30% of schedules). Commitments for partial market access are very high for commercial presence (89%) and the presence of natural persons (86%). Regarding national treatment, by mode of supply, the pattern is very similar, except that the level of full access for commercial presence (32%) is far higher than is the case in respect to market access (9%). [TABLE 6] By sub-category, 51 Members have made commitments in accounting, 50 in auditing and 42 in bookkeeping. [TABLE 7] This means that the majority (39) made commitments in all three sub-categories. Eight Members made commitments in only one sub-category (typically accounting), and nine other Members made commitments in two sub-categories. As noted above, only partial market access and national treatment are typically granted in respect to commercial presence and the presence of natural persons. In the case of commercial presence, the most common restrictions appearing in Members' schedules are limitations on the type of legal entity permitted, e.g. only partnerships or sole proprietorships may be allowed; limitations on equity participation; economic needs tests; and restrictions (or even prohibitions) on the use of foreign company names. [TABLE 8] Regarding the presence of natural persons, the most common entry in respect to market access, as for most sectors listed in GATS schedules, is "Unbound, except as indicated in the horizontal section". Mode 4 restrictions specifically listed under accountancy typically include residency and qualification requirements. In some cases, a number of years of experience in the country concerned is also mandated. In a few cases, Members have specified conditions for accountancy which are somewhat more liberal than listed under their horizontal commitments. ³⁴This analysis of existing GATS commitments is based on data from the electronic database currently under development by the Secretariat, and therefore should be regarded as preliminary

³⁵The schedules of Austria, Finland and Sweden are counted separately, as they have not yet been integrated into the schedule of the European Community and its Member States. Aruba, the Netherlands Antilles and New Caledonia also have schedules, but are not counted separately.

³⁶ It must be noted, however, that accountancy services purchased abroad are unlikely to be accepted for satisfying domestic accountancy requirements. In many cases, the qualification requirements and requirements for residency or even citizenship listed in schedules affect multiple modes of supply. In one case, a Member has placed a horizontal market access restriction, for professional services as a whole, that persons seeking to provide professional services must obtain recognition of their professional degree, enrol in the relevant college and establish legal domicile. In the case of auditing services, citizenship requirements are fairly common in Member schedules, despite the recent trend to remove them from national legislation. Seven WTO Members have taken MFN exemptions which directly specify either accountancy services or professional services in general.³⁷ These MFN exemptions all involve reciprocity provisions for the exercise of professional activities. Additionally, a number of Members have taken general MFN exemptions which may have an effect on the accountancy sector, most notably preferential access measures for natural persons. Separately from the market access and related negotiations on accountancy conducted in the context of the Uruguay Round, Members have also discussed issues regarding domestic regulation in the accountancy sector in connection with the mandate given in Article VI:4 of the GATS. The Ministerial Decision on Professional Services (S/L/3, dated 4 April 1995) mandated the establishment of the Working Party on Professional Services (WPPS), and gave priority to work in the accountancy sector. ³⁸ The initial phase of work by the WPPS consisted of the collection and analysis of data and studies of domestic regulation in the accountancy sector. In this regard, several seminars were organized. A questionnaire on specific aspects of domestic regulation was circulated to Members, and a synthesis of questionnaire responses was prepared by the Secretariat. In regard to international standards, the Singapore Ministerial Declaration of 13 December 1996 included the statement, "We encourage the successful completion of international standards in the accountancy sector by IFAC, IASC and IOSCO." The WPPS also worked on development of the non-binding Guidelines for Mutual Recognition Agreements or Arrangements in the Accountancy Sector; these were completed and issued in May 1997 (WTO document S/L/38, 28 May 1997). ³⁹ The next phase of work consisted of the submission of proposed disciplines by several Members (WTO documents S/WPPS/W/15-19). These proposals were consolidated by the Secretariat into an informal note. Ten revisions of the disciplines were prepared by the WTO Secretariat; the draft final version is entitled Disciplines on Domestic Regulation in the Accountancy Sector and contained in S/WPPS/W/21, dated 27 November 1998. Separately, a Chairman's Note was developed on the relationship between Article VI and Articles XVI and XVII (and is included in S/WPPS/W/21). Members also extensively discussed the question of potential legal forms for adoption of the accountancy disciplines; the outcome of the discussions (as of November 1998) is a draft Decision of the Council for Trade in Services, which the WPPS has recommended for adoption. ³⁷The countries are Costa Rica, Dominican Republic, Honduras, Panama, Thailand, Turkey and Venezuela.

³⁸The mandate under the Ministerial Declaration has three parts: 1) Establishment of guidelines for the recognition of qualifications; 2) Concentration on the use of international standards; and 3) Development of disciplines on domestic regulation.

³⁹S/WPPS/W/22, 25 November 1998, p. 1. Questions for further discussion:

• Should attention be given to the question raised by the OECD concerning professional qualifications, i.e. whether requirements on an investor/owner need to be as strict as requirements to practice?
  
  
• Should the scope of GATS definitions be expanded to include "residency" and other potentially ambiguous terms?

VI. SOURCES OF ADDITIONAL INFORMATION Relevant sources of additional information also include the following Internet sites:

• Arthur Andersen
  
  
• Confederation of Asian and Pacific Accountants
  
  
• Deloitte Touche Tohmatsu
  
  
• Ernst & Young International
  
  
• Fédération des Experts Comptables Européens
  
  
• International Federation of Accountants
  
  
• International Accounting Standards Committee
  
  
• International Organization of Securities Commissions (IOSCO)
  
  
• KPMG International
  
  
• OECD, Accounting Reform in Estonia, Latvia, and Lithuania
  
  
• OECD, Accounting Reform in Central and Eastern
  
  
• OECD, Links to Other Accounting and Audit Sites {Includes non-OECD national sites}
  
  
• PricewaterhouseCoopers
  
  
• UNCTAD, Accountancy Reform in Developing Countries
  
  
• World Bank, Strengthening Auditing and Accounting Performance in Sub-Saharan Africa