New financial era dawns.

For the profession, 2001 will be a year of fresh starts. And it will therefore be a year of opportunity for it to re-establish and expand its role in corporate and wider society. In the UK, the final recommendations of the company law steering group will be going to ministers in the spring. They will include proposals for a new technology-based accounting framework, new accountability for shareholder value beyond the historical numbers; and a new Companies Commission to take it forward. Globally, a new structure for setting international accounting standards will find its feet. And my crystal ball says that 2001 will be the year in which corporate social accountability will come out of the cradle. For the accounting profession to capture the ground, there should be a common theme. That is to halt the slide to a rule-based profession. Principles require accountants’ professional judgement, rules are for lawyers. If I were asked to be the counsel for the case against, I would not take it on. The advance of corporate reporting will require innovation and experimentation rather than rule setting. The portrait of a company in a new era of accountability means crafting the picture, rather than painting by numbers. That should represent the professional skills in the new era. No company ever went bust because of a technical accounting rule; many have done so because the picture didn’t make sense. ‘Bean counters’ is a fun tag but we need to take the perception seriously. Does the term ‘accountant’ mean only the ability to count? Should it not mean expertise in accountability? No contest again. The new era of accountability will not be based on precision. The profession will need to come away from its comfort zone. Now apply this to the specifics. Take international accounting standards first. An approach which relies on many detailed rules may obscure the underlying principles and encourage the attitude that an approach may be adopted if it is not prohibited by a rule. Those are not my words, but the recommendation of the outgoing International Accounting Standards Committee to its successor. The Ten Commandments have stood the test of millennia remarkably well. But, if you write a 100 page standard on the meaning of adultery, somewhere in it you will find an excuse for a fling. Of course, the world’s accounting standards cannot be written on just one tablet. Underlying the achievements of the Anglo-Saxon standard setters is a vast body of thought on seemingly intractable problems of accounting for the incredibly complex business transactions which are now the way of the world. And none more so than in the US. But somehow we will have to find a compromise between the extraordinary rigidity of a legally driven US accounting code and something appropriate to the rest of the world. Contemplate using the US approach as a world standard,and how many more volumes would need to be added to deal with other countries’ fiscal systems, pension arrangements and so on. Sadly, the UK has already given up its pragmatic deferred tax accounting in the interests of international convergence; we now have precise numbers, but in my view they are precisely wrong for the UK. What the rest of the world has to do is convince the US authorities that our professional judgement on a more flexible code can be relied upon. The UK can take a lead; the recent SEC hearings noted our system of professional regulation. Now to the UK company law review. Its cornerstones are: – Excluding from the law all that which doesn’t require parliamentary scrutiny, including the corporate governance code and the vast majority of accounting requirements – Therefore concentrating the law on directors duties, and their accountability through the new Operating and Financial Review (new OFR) – The proposed Companies Commission of investors, directors, professional advisers and others within a stake in corporate governance to take it forward. It is an excellent package. Corporate governance codes can be concentrated on their principal purpose of wealth creation, as well as investor protection which initially drove them. And whoever heard of a ‘rule’ for the creation of wealth? Delegating accounting to a largely non-statutory mechanism recognises the extraordinary potential and pace of technology. The next generation of ‘Aunt Agathas’ will have been brought up on the internet – or will they still want the glossy on the hall table? Many people over simplify the effects of technology: it is said, for example, that all companies will put last week’s sales on screen. Maybe they are an indicator of shareholder value for a fashion retailer but they will mean nothing for a pharmaceutical company where value is in products in the pipeline. We don’t know how it will all pan out so we need the flexibility. Technology years are like dog years, but regulatory days tick by like years. That is why we need principles rather than rules. And the centrepiece of the law review is surely the new OFR of the real drivers in shareholder value. The profession has been saying for years that value cannot be read off the historical accounts. Now is our chance – do we take it forward or leave it to the lawyers as is the custom for the US Management Discussion or Analysis? The New OFR is not intended as an account of corporate social responsibility per se. But it does not stop there. The failure of the first attempt at the next trade round in Seattle, the rise of the NGOs, the protests at any world economic gathering (anarchists apart) and, perhaps most importantly, dinner party discussions of business leaders, show that corporate social accountability is moving from political correctness to serious consideration by companies. Now there is no rule for that. – Roger Davis is the ICAEW’s representative on the company law consultative committee and head of professional affairs at PricewaterhouseCoopers The DTI has a special area of its website dedicated to the Company Law Review at www.dti.gov.uk/cld/review.htm For more on social and environmental accounting go to www.accountancyage.com/Business/1109896 The environmental report can be downloaded from www.corusgroup.com Value, Growth, Success – How Sustainable is your Business? can be found at www.detr.gov.uk/environment/acbe/directors/index.htm The Corus Environment report can be downloaded from the group’s website at www.corusgroup.com SOCIAL AND ENVIRONMENTAL ISSUES ADVICE ON THE NET Advice for company directors on addressing their social and environmental responsibilities has recently been published by a group called ACBE, the Advisory Committee on Business and the Environment – a committee consisting of representatives from government and industry.

The guidance is aimed at companies with more than 250 employees and is designed to help them review their levels of sustainability and create action plans to deal with problem areas. Some companies, including Corus, produce reports detailing their commitment to social and environmental sustainability.

The Corus report details its environmental policies and projects, and features the windmills in Spain above, which are made from metal supplied by the steelmaking giant.

A spokesman for the company said the project was typical of the forms of renewable energy Corus was involved in. The group originally used the picture in an advertising campaign to convey the message of sustainability and environmental responsibility. Also included in the report are details of Corus recycling activities. Around 40% of new steel worldwide is made of recycled steel.

However, such careful attention to publishing its polices did not help Corus escape criticism last week when it announced thousands of job losses.

The government and unions were angered because they said the steelmaker had refused to enter into sufficient dialogue with them over the way that it handled the crisis.