The debate between rules and principles-based accounting has rumbled
on for a while now, but is there a new threat from the US that could take us
down the road of a rules-based approach?
The debate is not new. The real issue is, is accounting an art or a science?
If it is an art and has subjectivity in it, it has to be principles-based rather
than rules-based. Now the balance between the two has been debated forever and
there is no doubt that there are some instances, especially the scandals of now
four or five years ago, when people were taking advantage of and exposing the
weaknesses in principles-based regimes.
But equally, some of them were cheating and were taking advantage of
rules-based regimes, or just bluntly breaking the rules. I think where the UK
has always come from is that there is a vital element of principles involved
here and there is, at the moment, no known substitute for principles.
You mentioned the scandals that we saw in the US. Enron is the
classic one. Will you go as far as to say that we have avoided those type of
scandals because we’ve adopted the principles-based approach?
I’m not sure it’s because we’ve adopted the principles-based approach. One
has to be careful because I don’t know exactly what happened in these individual
cases other than what we all read in the paper. But if you assume there was a
degree of fraud or wrongdoing, I think both the rules-based approach and the
principles-based approach should have caught them. I’m not convinced that
having a rules-based approach only, which is after all what the Americans had
at the time, was the sole cause.
Does it matter that UK companies have a choice of just four global
account-ancy firms? Do they offer a genuine choice to corporates?
Well, obviously this is a question they feel better qualified to answer than
I do. I’m perfectly aware that everyone, including ourselves, would infinitely
prefer there to be more than four. For the amount of grief and the number of
times we have had to answer this question, we would prefer there to be five or
six as well, but the reality is there aren’t and it’s really quite difficult to
create a fifth or a sixth overnight.
So as you said, your profession has come in for a certain amount of
criticism. How do you see this profession going forward? What are going to be
the key developments in the future?
Well, I think – and I’m now speaking for the UK profession – we have a
wonderful tradition of producing tomorrow’s financially literate people, whether
that’s finance directors populating the city or remaining in our
profession. I think we have built a bedrock of financial excellence in the UK
and we have been a pretty important cog in the building of it.
So my great plea to everybody is: a) to give us credit for that, and b) not
to, as it were, tinker with the edges in the interests of moving something
slightly more forward, and in so doing destroy that old-fashioned guild type
system. Because only one thing is certain – if we destroyed it we would never
ever be able to recreate it and I think that the UK in general,
and the City in particular, would suddenly lose a rather more important cog
than perhaps they had given us credit for being.
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