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Governing Audit Globally: IFAC, the New International Financial Architecture and the Auditing Profession

Christopher Humphrey and Anne Loft

in Accounting, Organizations, and Institutions: Essays in Honour of Anthony Hopwood

In 1994, Anthony Hopwood wrote about the ‘very active politics’ in the emergent international arena in accounting and auditing, analyzing the institutional interfaces between the international ... More

In 1994, Anthony Hopwood wrote about the ‘very active politics’ in the emergent international arena in accounting and auditing, analyzing the institutional interfaces between the international regulators and the international accounting profession. In doing this he touched on a set of relationships and arrangements that over the subsequent fifteen years have developed into what is now widely recognized as the New International Financial Architecture (NIFA). In terms of global accounting regulation, the International Accounting Standards Board (IASB) has attracted significant research attention. However, far less attention has been paid to the global audit regulatory arena and, in particular, to the International Federation of Accountants (IFAC), which has standard setting boards responsible for international standards on auditing practice, ethics, and education. Responding to this gap, this chapter seeks to assess the contemporary pertinence of Hopwood's (1994) observations and reflections, using empirical and theoretical insights from the rapidly growing literature in the global governance field. What emerges in the field of global auditing regulation is a more complex and interlocking set of relationships than the ‘interfaces’ and ‘lobbying activities’ that Hopwood identified as taking place between regulators and the profession. The chapter describes this as a form of ‘coordinated network governance’ which is binding together international regulators and the international profession in an ongoing project attempting global governance in the audit arena.Less

International Borrowing

RUMU SARKAR

in International Development Law: Rule of Law, Human Rights, and Global Finance

This chapter explains the international financial architecture supporting the financing of international development. It examines the international borrowing practices of sovereign states, and ... More

This chapter explains the international financial architecture supporting the financing of international development. It examines the international borrowing practices of sovereign states, and analyzes two case studies of the Mexican and Asian financial crises. These sovereign debt crises are examined from the standpoint of strategic and tactical approaches to resolving them, and preventing financial contagion in the future. The current global financial contagion, originating in the United States, and its impact on developing countries, is reviewed from a “lessons learned” perspective. Tactical approaches to resolving sovereign debt crises such as debt-for-debt exchanges, debt-equity swaps, debt securitization, credit facilities, and special financing techniques are critically reviewed. Finally, debt relief as a development strategy is critically examined. Explanatory text boxes and other graphics are provided to assist the reader absorb a complex area of law.Less

Next Steps in the Debate

Michael Chui and Prasanna Gai

in Private Sector Involvement and International Financial Crises: An Analytical Perspective

Provides a brief summary of the international financial architecture debate and suggest possible future directions for research.

Reforming the International Financial Architecture: Consensus and Divergence

José Antonio Ocampo

in Governing Globalization: Issues and Institutions

The Asian crisis and its rapid spread to Russia and Latin America in 1997 and 1998 gave rise to a broad consensus on the need to reform the international financial architecture in order to reduce the ... More

The Asian crisis and its rapid spread to Russia and Latin America in 1997 and 1998 gave rise to a broad consensus on the need to reform the international financial architecture in order to reduce the inherent instability of the current system. This chapter critically reviews the ongoing debate from the developing country perspective and argues the case for a thoroughgoing reform of the current architecture. It looks at the current controversy which is organised in terms of distinguishing the areas in which there is some agreement from those in which there is still a considerable divergence of opinion. This is an expository device, based on the chapter's perception of existing consensus and divergence. The chapter focuses on reforms needed to prevent and manage financial crises — what may be called the ‘narrow’ financial architecture — leaving aside issues relating to development finance, in particular.Less

Final Thoughts

Barry Eichengreen

in Financial Crises and What to Do About Them

This chapter comments on the international community's crisis prevention and crisis resolution efforts. It suggests that though a variety of initiatives have been successful, two gaps remain. One is ... More

This chapter comments on the international community's crisis prevention and crisis resolution efforts. It suggests that though a variety of initiatives have been successful, two gaps remain. One is addressing the problems of the poorest countries because several elements of the so-called new international financial architecture have created further obstacles to their road to economic development. The other gap involves creating alternatives to bailouts for resolving crises in order to ease the pressure on the International Monetary Fund to extend to financial assistance.Less

The Existing System and the Missing Institutions

Deepak Nayyar

in Governing Globalization: Issues and Institutions

This chapter considers the institutions, with a focus on the United Nations, the Bretton Woods institutions, and the World Trade Organisation, to sketch some contours of reform and change necessary ... More

This chapter considers the institutions, with a focus on the United Nations, the Bretton Woods institutions, and the World Trade Organisation, to sketch some contours of reform and change necessary in the existing system. It then sets out the issues, of emerging significance in the contemporary world, to suggest that there are some missing institutions, which are needed. The issues selected, global macroeconomic management, international financial architecture, transnational corporations, cross-border movements of people, or international public goods and public bads, are illustrative rather than exhaustive. In addition, the chapter explores some important elements of governance, such as structures of representation or decision-making in institutions, international rules or norms, evolution or change in institutions, and the role of the nation state, which are critical for any vision about the future.Less

The Reorganization of the International Financial Architecture in the Wake of the Global Financial Crisis

Claus D. Zimmerman

in A Contemporary Concept of Monetary Sovereignty

Like earlier crises, the Global Financial Crisis has triggered a restructuring of the international financial architecture. The G-20 was revived to provide a forum for the leaders of the world’s ... More

Like earlier crises, the Global Financial Crisis has triggered a restructuring of the international financial architecture. The G-20 was revived to provide a forum for the leaders of the world’s largest economies to agree on reforms intended to promote global economic and financial stability. The Financial Stability Forum was re-established with increased responsibilities and an extended membership as the Financial Stability Board. The IMF increased its efforts to assess the financial sectors of its members and of their compliance with financial standards and codes. Finally, in order to increase the IMF’s legitimacy and effectiveness, the IMF’s membership has undertaken the largest-ever overhaul of the IMF’s governance structure. This chapter takes a succinct look at the key aspects of these reform avenues and assesses whether the experience of the Global Financial Crisis has prompted states to substantially change the way they exercise their sovereign powers in monetary and financial matters.Less

Sudden Stop, Financial Factors, and Economic Collapse in Latin America: Learning from Argentina and Chile 1

Guillermo A. Calvo and Ernesto Talvi

in The Washington Consensus Reconsidered: Towards a New Global Governance

This chapter shows that the Russian 1998 crisis had a big impact on capital flows to Emerging Market Economies (EMEs), especially in Latin America, and that the impact of the Russian shock differs ... More

This chapter shows that the Russian 1998 crisis had a big impact on capital flows to Emerging Market Economies (EMEs), especially in Latin America, and that the impact of the Russian shock differs quite markedly across EMEs. To illustrate this statement, the polar cases of Chile and Argentina are compared. While Chile exhibited a significant economic slowdown after August 1998, it did not suffer the excruciating collapse suffered by Argentina, where even the payments system came to a full stop. This difference is attributed to the fact that Chile is more open to trade than Argentina, and that it appears to suffer much less from balance-sheet currency-denomination mismatch that was rampant in Argentina before the 2002 crisis (due to large domestic liability dollarization). The chapter is essentially descriptive but is in line with and, thus, complements econometric studies like Calvo, Izquierdo, and Mejia (NBER Working Paper 10520). The final section addresses policy issues in light of the chapter's findings and conjectures.Less

An Evaluation of Proposals to Reform the International Financial Architecture

Morris Goldstein (ed.)

in Managing Currency Crises in Emerging Markets

This chapter evaluates several proposals for the reform of the international financial architecture using the lending policies and practices of the International Monetary Fund (IMF) as an organizing ... More

This chapter evaluates several proposals for the reform of the international financial architecture using the lending policies and practices of the International Monetary Fund (IMF) as an organizing device for discussing selected issues in the reform debate. These include proposals to increase the interest rate or reduce the maturity of IMF loans, to restrict the size of IMF rescue packages and to replace ex post macroeconomic policy conditionality of the IMF. The analysis reveals that proposals for addressing currency mismatching problems appear to be either too costly or too drastic. This chapter suggests a combination of managed floating and active development of hedging mechanisms.Less

International Financial Regulation

Abraham L. Newman and Elliot Posner

in Voluntary Disruptions: International Soft Law, Finance, and Power

Chapter 3 describes the international financial regulatory architecture, providing necessary background for the substantive studies that follow. It gives special attention to the architecture’s two ... More

Chapter 3 describes the international financial regulatory architecture, providing necessary background for the substantive studies that follow. It gives special attention to the architecture’s two defining aspects: the soft law character of the rules it produces and the fragmentation of rule-making by subsectors. A matrix of forums develops advisory prescriptions for specific financial policy areas. The chapter traces the architecture’s origins and evolution, including how policy-makers and standard-setting organizations dealt with the breakdown of traditional boundaries between markets and subsectors. It provides background on the book’s featured causal variable: international soft law. It also offers an original explanation for the architecture’s key features. The chapter highlights the prominent role of domestic institutional arrangements within the United States and other jurisdictions with important markets for the early development of soft law-creating organizations and establishes the role of contingency, sequence, and endogeneity (with reference to domestic institutions) in the architecture’s evolution.Less

Globalization, Coercion, and the Resiliency of Austerity

Aaron Major

in Architects of Austerity: International Finance and the Politics of Growth

This chapter tells the story of international institutional from the 1970s forward. While the existing scholarship highlights processes of financial market liberalization in this period, this chapter ... More

This chapter tells the story of international institutional from the 1970s forward. While the existing scholarship highlights processes of financial market liberalization in this period, this chapter highlights three developments in the evolution of the international monetary system that have elevated monetary authority's role in managing the global economy: (1) the assault on inflation in the 1970s and the spread of inflation targeting regimes, (2) the construction of a bank-centered regulatory system for capital, (3) and the performance of “lender of last resort” functions in times of crisis.Less

Challenges in Financial Regulation

STIJN CLAESSENS

in International Finance: A Survey

Financial intermediation and financial services industries have undergone many changes in the past two decades due to deregulation, technological advances, and globalization. The recent financial ... More

Financial intermediation and financial services industries have undergone many changes in the past two decades due to deregulation, technological advances, and globalization. The recent financial crisis is forcing the industry through additional sharp adjustments. The framework for regulating finance has seen many changes as well and the crisis has led to many new regulations and proposals for other changes. The objective of this chapter is to review thinking on what kind of regulatory framework is necessary to develop a financial sector that is efficient and provides proper access to households and firms, while maintaining its stability. The chapter outlines four areas of current debate: (1) the special role of banks, (2) competition policy, (3) consumer protection, and (4) the costs of regulation and harmonization of rules across products, within markets, and globally. The chapter concludes with some areas where more research would be useful.Less

The International Lender of Last Resort: How Large Is Large Enough?

Olivier Jeanne and Charles Wyplosz (eds)

in Managing Currency Crises in Emerging Markets

This chapter examines whether an international lender of last resort (ILOLR) would be a useful addition to the international financial architecture. It analyzes whether an ILOLR can function ... More

This chapter examines whether an international lender of last resort (ILOLR) would be a useful addition to the international financial architecture. It analyzes whether an ILOLR can function effectively as a fund with limited and predetermined resources using a model of an emerging economy vulnerable to international liquidity crises. The findings reveal that required size of the ILOLR depends on how its resources are used by the domestic authorities. This chapter explains that if the LOLR backs a guarantee of the foreign currency liabilities of domestic banks, its resources do not need to be larger than the liquidity gap in the domestic banking sector.Less

Exchange Rate Regimes

Sebastian Edwards, Domingo F. Cavallo, Arminio Fraga, and Jacob A. Frenkel

in Economic and Financial Crises in Emerging Market Economies

This chapter analyzes the relationship between exchange rate regimes, capital flows, and currency crises in emerging economies in the context of the implementation of a new financial architecture. It ... More

This chapter analyzes the relationship between exchange rate regimes, capital flows, and currency crises in emerging economies in the context of the implementation of a new financial architecture. It evaluates some proposals for reform of the international financial architecture that focus on exchange rate regimes and capital mobility. This chapter also examines the effectiveness of capital controls as a crisis prevention device and evaluates whether emerging markets can adapt to super-fixed or freely floating exchange rate system.Less

Roundtable: Institutions for the New Millennium

Matthew Bishop, T. Britton Harris, John Lipsky, Allan Meltzer, and Guillermo A. Calvo

in International Financial Markets: The Challenge of Globalization

This chapter presents the text of the roundtable discussion of the report of the International Financial Institutions Advisory Commission (IFIAC). The panelists all agree that capital controls are ... More

This chapter presents the text of the roundtable discussion of the report of the International Financial Institutions Advisory Commission (IFIAC). The panelists all agree that capital controls are not an answer to the financial crisis problem, except in very extreme circumstances and under conditions of credibility about their transitory nature. There is also a consensus that hybrid or intermediate exchange rate regimes should not be adopted, a sound domestic financial structure is of paramount importance and the International Monetary Fund (IMF) has a role to play the improvement of the international financial architecture.Less

Debts, Human Rights, and the Rule of Law: Advocating a Fair and Efficient Sovereign Insolvency Model

Kunibert Raffer

in Too Little, Too Late: The Quest to Resolve Sovereign Debt Crises

Chapter 15: The shortcomings of the present international financial architecture and the limits of the contractual approach were forcefully recalled recently. Starting from the UN’s demand for ... More

Chapter 15: The shortcomings of the present international financial architecture and the limits of the contractual approach were forcefully recalled recently. Starting from the UN’s demand for sovereign insolvency, this paper analyzes which elements are indispensable for any model to be rightly called insolvency: equality of parties instead of creditor diktat, debtor protection, fairness and a solution in the best interest of all creditors. This is important as private creditors have increasingly had to suffer unnecessary losses caused by the public sector. For countries, the problem of sovereignty must be solved. A model is presented that fulfills all these requirements, the Raffer Proposal. The paper concludes by showing that there has been progress since the 1980s, although at snail speed.Less