Just over a year ago Accountancy Age published its ten-point manifesto designed to restore faith in the accountancy industry. It was largely put together before Enron, and certainly before the full consequence of this catastrophe had become clear.
Link: Re-read the manifesto
In fact, it could be argued that the Enron affair has given the push to implementing some of the changes we were looking at at the time.
Despite the support we received from many distinguished politicians and others, without Enron the glacial rate at which the accountancy industry brings about change would certainly have resulted in nothing having been done by now.
Even as it is, speed is hardly a distinguishing feature of the response of the industry – or indeed the government – to the issues thrown up by the problems in the US. One feels they hope it will turn out to be a one-off and go away.
Yes, accountancy is engaged in working partyitis, consulting, and buzzing to and fro across the Atlantic, and the government has produced a white paper. But the worry is that this is no more than displacement activity while the unsatisfactory scene in the industry continues without any realistic prospect of change.
We have seen already the rejection by the industry – though not necessarily by the government – of compulsory rotation of auditors.
Consultancy and audit arms of firms have split, but we have no rules saying the consultancy – which is culturally, and possibly financially, linked with the auditing firm – cannot do any work for the auditee.
No progress seems to have been made on the notion of an indemnity fund to stop the Big Four chasing each others’ tails at the expense of creditors and shareholders, nor have we seen more transparency in reporting by auditors.
Some progress may be made on directors’ remuneration and Higgs may prove to be helpful, though it is ominous that the first reaction from business seems negative.
The National Audit Office and the Audit Commission are lying low, sheltering behind the wasted opportunity of the Sharman report.
Indeed the NAO seems quite happy to go on endorsing the Enronesque bookkeeping activities of the Treasury.
Raising a level for statutory audit is still on the table but it may be that, post-Enron, more, not better, audit practices will be endorsed.
Mandatory social reporting must come but we don’t hear much of it now.
People are more concerned about shareholders than the public. But the public needs to know about pollution and companies that pay starvation wages in the third world or fail to pay their bills on time.
The suggestion that a tax practice committee be set up to simplify the system for both business and personal taxation has got nowhere. And so long has Mr Brown and his mates at the Treasury maintain their tinkering and centralising policy, it is unlikely to see the light of day.
So, despite a lot of hot air being spouted not a lot of progress has been made to date.
Perhaps the biggest message post-Enron is the danger of seeing audit and accountancy as an industry that needs to be governed by a set of rules – a tick on the check list or the spreadsheet and the job’s been done.
As some have pointed out, there has to be a step back to a holistic view of the industry, what it’s doing and how it presents itself to shareholders, creditors, trading partners, government workers and the public.
Are we being given a full and accurate picture? Good firms – and good auditors – will ensure we are.
But some way of ensuring that everybody comes up to the standard of the best is going to have to be found if people are going to believe they can rely on what companies do and on what auditors say.
Capitalism – particularly global capitalism – hasn’t been receiving the best of press, although it is probably the best system we know of for creating wealth for the world’s population.
But if it appears to be – and is – tarnished by the kind of events we’ve seen in the last year, the case for the anti-globalists is strengthened. This may be fun in the short term but is ultimately to the detriment of everyone. The accountancy industry has a huge responsibility in this area.
Perhaps we can revisit the manifesto in another year and see just how far the glacier has moved.