From the inside or outside?
Whether to regulate the accountancy profession is not at issue – the question is how? External regulation or self-regulation? Each has its advantages and disadvantages, its supporters and its opponents. The consultation document, just published by the working party of the six members of the Consultative Council of Accountancy Bodies (CCAB) chaired by myself, proposes an interesting marriage of the two.
Its proposals are designed to ensure true independence where this is crucial to the credibility of the regulatory structure, while allowing for self-regulation where this is the most effective way of ensuring workable rules to which the profession is prepared to commit itself.
Following the announcement in April by the CCAB bodies of plans for a review board to examine how far the profession’s regulatory and disciplinary structure meets the public interest, the Swinson working party was charged with developing how this would work in practice. It is now suggesting the creation of a new Foundation representing City and Irish institutions, consumers and shareholders, and independent of the profession.
The Foundation’s role will be two-fold. First, it will establish the Review Board, nominate its members and ensure that sufficient resources are available should there be any financial dispute between the bodies and the Review Board. Second, it will ‘own’ a newly constituted and independent Auditing Practices Board responsible for auditing standards, and nominate its members.
In proposing a Foundation, the working party is responding to criticisms of current arrangements. It recognises that institutions, such as the Review Board, must be both independent in their practices, and be seen to be independent, if they are to speak effectively in the public interest.
The objectives of the Review Board will be to:
consider and review the extent to which the different schemes of regulation and discipline within the profession serve the public interest by enhancing and maintaining the standards of work of professional accountants;
and publish reports on the general development and operation of these schemes, making recommendations for improvement in practice.
It will oversee the Auditing Practices Board, with a particular concern for ensuring its independence and be there to insist on urgent action should any party appear to be attempting to exert undue influence.
The Review Board will also look into the activities of the professional accountancy bodies as regards registration, regulation and monitoring, investigation of complaints tribunals and the provision of professional guidance. Its remit will cover all aspects of regulation and discipline, including the profession’s contribution to statutory schemes for the regulation of investment business, auditing and insolvency practice.
Therefore, responsibility will continue to rest with the profession, although there will be the added spur of knowing that the Review Board will be quick to point out any failure. There are two major benefits of this: practitioner involvement helps ensure ‘ownership of rules and regulation’, and that rules and regulations are workable by drawing on practitioners’ understanding of the art of what is, and what is not, possible.
One final piece of the jigsaw remains – relating to ethics. Professional ethics are fundamental to the setting of, and compliance with, standards. The logic must be to develop ethical guidance on a consistent basis to cover all the professional activities of accountants. The Swinson working party has, therefore, already started to consider whether and how to establish a profession-wide framework for the development of ethical guidance on a broad basis.
The reaction to the consultation paper will, to a large extent, determine whether there is a future in these ideas. Comments are invited on the proposed structure – namely:
the profession’s regulation and discipline systems should be sustainable and stable;
the public interest should be voiced with conspicuous independence;
the Review Board’s remit should span all parts of the profession’s systems of regulation and discipline;
under the remit of the Review Board, the systems of discipline and regulation should be maintained as coherent and comprehensive.
It seems clear that there can be no going back. The Swinson proposals are the best chance of continuing to serve the public interest and meet ever changing public expectations by advancing the highest standards of accountancy practice.
Chris Swinson is a partner at BDO Stoy Hayward and English ICA vice president.