Foundation is laid for self-regulation

To accountants who have followed the long-running self-regulation saga, the only surprise about the ‘Framework of self-regulation for the accountancy profession’ was the timing of its appearance last week.

Observers had assumed the framework would be sidelined, both by the government’s preoccupation with today’s Scottish, Welsh and local government elections, and the illness of trade minister Ian McCarthy.

In spite of suffering what was described by his department as a ‘mini-stroke’ last month, when he got back to work McCartney was as determined as ever to place the UK’s 200,000 accountants under the control of bodies ruled by 60% lay member majorities.

The original plan devised by the institutes proposed they set up and fund a new Foundation controlled by a six or eight-member board divided equally between accountants and lay members. During the consultation period after the draft plan came out in November, members of the profession reiterated their unease with the DTI’s insistence on lay majorities.

As Swinson explained at the time, accountants were concerned that people who had not trained within the profession would struggle to understand the circumstances of people who worked within it. ‘There is a need to safeguard the profession against raw decisions,’ says Swinson.

Apart from the 60:40 split, which he termed ‘a bit of a disappointment’, the framework is a triumph for Swinson, who managed to keep all six Consultative Committee of Accountancy Bodies together for long enough to get the government to buy into the profession’s own blueprint.

The Foundation will oversee a reformed Auditing Practices Board, along with two new bodies: an Ethics Standards Board and an Investigation and Discipline Board. An independent Review Board will act as a watchdog, with powers to scrutinise the work of the Foundation-controlled boards and the monitoring, disciplinary and training activities retained by the professional institutions (see above).

Parliamentary hard-liners, most notably Labour MP Austin Mitchell, were credited as the constituency to whom McCartney bowed in holding to the 60:40 line, which will apply not just to the Foundation, but to its subsidiaries as well. Mitchell himself is not impressed with the result.

In his view, the government ‘caved in’ to the profession because it could not find time in the parliamentary calendar to introduce the necessary legislation to create a genuinely independent regime. ‘In our manifesto we promised to introduce independent regulation and this is not it,’ says Mitchell.

‘In effect, it’s still regulation by trade association.’

Swinson is not fussed by the criticism: ‘This has been in the public domain for some time. Most of the opposition should be out of the system by now.’

What Swinson is less clear about is how the structure will work, even though he has been delegated to lead the implementation group. Swinson’s term of office as English ICA president ends in June, when his CCAB chairmanship also expires. But for continuity’s sake, McCartney has asked him to see through the reform package. Other CCAB-member institutes are being invited to participate in the group, with the Scots ICA’s Jim Gemmill already confirmed as a member.

The main challenge the group faces will be to recruit suitable candidates.

As Swinson acknowledges: ‘A lot will depend on who is selected.’

The Auditing Practices Board is the one element of the structure that already exists and illustrates the practical problems the Foundation will face.

The APB board includes 17 voting members based roughly on a 50:50 composition of accountants and lay members.

Members are chosen by the CCAB’s appointments committee, which is composed of the same sorts of bodies identified as nominees for Foundation board members: the Bank of England, the Stock Exchange, National Consumers’ Council, the Confederation of British Industry and representatives from institutional shareholders.

But APB board members acknowledge that the work is a drain on their time and few have managed to be replaced over the past few years. ‘It is very important to get the right calibre people on the board,’ says APB chairman Ian Plaistowe.

‘But a number will feel it is time to go.’

But for now both sides are mostly happy. Nevertheless, in the background a doomsday scenario lurks. Only this year the Securities and Investment Board was folded into the Financial Services Authority.

Perhaps, suggest some observers, after five years the Review Board could be given statutory powers and the institutes themselves stripped of independent powers. Given that the profession is relatively relieved at the new arrangements, it is very much in its interests to make it work and – more importantly – be seen to make it work.

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