More muscle needed to keep institutes in check

THE PROFESSIONAL Oversight Board, part of the Financial Reporting Council, has responsibility for the oversight of the accountancy profession in the UK. In particular, it is responsible for overseeing the professional accountancy bodies that grant qualifications to accountants to enable them to carry out statutory audit work in the UK, and the bodies that supervise and regulate practising statutory auditors.

We report on this, and our other work, annually to the Secretary of State for Business, Innovation and Skills, and have just issued our report for the year ended 31 March 2011.

To some extent, our report is like any end of term report – “could do better” might be thought to be an adequate summary. We certainly hope that the regulators of statutory auditors will continue to improve their performance. However, the professional bodies are generally starting from a high base. One must not assume that because there is room for improvement, everything is unsatisfactory – it is not.

The structure of the regulation of auditors may seem rather complicated, but is based on self-regulation by the bodies with independent oversight by the POB.

The bodies have been regulating their members for very many years, and their processes and resources are generally up to the task. Consequently, we do not review all their regulatory activities each year, but choose some for particular focus.

This year, amongst other areas, we looked at how the bodies awarded exemptions from certain examination papers.

All professional bodies want their newly qualified members to have been thoroughly tested in the requisite knowledge and skills, and they generally do this by setting and marking their own examinations. But equally, professional bodies wish to be attractive to potential students, and one way of being so is to ensure that holders of relevant degrees are given appropriate examination exemptions. We wanted to check whether the bodies had valid bases for making the necessary decisions on exemptions.

Some of the questions for the bodies are: do they really know in sufficient detail what the current syllabus is in each university to whose graduates an exemption might be granted; are university pass marks comparable to those of the professional examinations; how recently must the degree have been obtained; and do exempt students do as well as others in those professional examinations that they do have to sit?

If you consider how many universities may be involved, and that some will be outside the UK, you will appreciate some of the difficulties here. But to understand is not to excuse, and most professional bodies have some improvement to make in at least one of these aspects. Our report spells out our findings, and indicates the challenges facing each individual body.

Although we find that the bodies generally respond positively to our suggestions for improvement, we are nevertheless aware how much the system depends upon their willingness to do so. Our powers are to strip a body of its recognised regulatory role, or to apply to the courts for an order to require a body to comply with its obligations. These are clearly last resort approaches, which is why we think the system would be more robust if we had some direct power, for example to impose fines.

It would be better to seek to improve our powers before any major disagreement arises between us and the bodies that we oversee.

We are not looking to increase regulation but to ensure that it remains effective when tested, by the possession of a range of more proportionate powers.

We are considering this matter with the Department for Business, Innovation and Skills.

John Kellas CBE is interim chairman of the Professional Oversight Board, part of the Financial Reporting Council