Regulators have neutered accounting rules says CIMA chief

IN A CLIMATE of flawed accounting standards and boilerplate audits, CIMA’s chief executive believes accountants in business are the ones who must flag up potential issues to investors.

The knee-jerk reactions of standard setters in this financial crisis – and previous ones – haven’t worked, according to Charles Tilley.

Financial instruments standards thought to be unfit for purpose have suffered carve-outs, while auditors have been blamed for not raising the alarm about questionable accounting practices.

Jittery regulators have made the preparation of financial accounts and the corresponding audits “very defensive and highly prescribed,” Tilley said.

Continuing on this path would make accountants focus on compliance and reporting than on helping the business to navigate the challenges ahead.

“We’ve lost prudence in accounting standards and that’s a real shame,” Tilley told Accountancy Age before he spoke to the World Congress of Accountants in Kuala Lumpur today (11 November).

“The accounting standards do not give the flexibility to talk about what’s required in individual business models. That objective is just not delivered by the much narrower financial accounts and the audit thereof.”

The backlash to the credit crunch has also rekindled the debate on audit concentration and this is clearly an issue for the companies who pay good money for comfort on their accounts.

Noises have been made by the European mandarins and City regulators at the FSA about having an independent body to appoint auditors, or forcing companies to rotate their auditors more frequently.

These proposals would allow more mid-tier players to enter the arena for auditing the upper reaches of the Stock Exchange.

In the FTSE 100, 99% of engagements are currently held by the Big Four.

However, Tilley sees some major sticking points for multinational companies.

Firstly, how would dual-listed companies headquartered overseas react to an independent body appointing auditors if there were no such requirements to do so in the US, for example?

He also flagged up problems with the UK ploughing on ahead with speedier auditor rotation without the rest of the G20 being on the same page.

“I find it very difficult to understand how we [would introduce an auditor appointment board or greater rotation],” Tilley said.

“It’s a global truly international business world that we live in, and [overseas] management boards would take issue with this if forced to abide by rules which weren’t a feature of their own regulatory regime.”

Fears have already been raised about the presence of an independent auditor appointment board and mandatory rotations.

Detractors say it could put us at a competitive disadvantage with other countries because companies will leave the UK to escape the heightened cost and regulatory burdens.

“The UK can’t do this alone. It’s at least a G20 issue,” Tilley said.

The CIMA boss concluded the main challenges which faced management accountants included globalisation, technology, finite resources, scale and complexity.

“The businesses with the best prospects can balance cutting costs to maximise efficiency, with investing to develop their competitive position and ensure their sustainability
There has never been a better time to be a management accountant.”