Peter Mandelson may have been tied up at the Trades Union Congressreveals revamp of profession’s regulation, writes Jon Bunn. last Thursday, but he also made an announcement that will see the biggest shake-up of the accountancy profession for years.
With one hand, the trade and industry secretary revealed that asset-protecting UK limited liability partnerships will become a reality, probably by next summer. With his other, he sketched out a major revamp of the profession’s regulatory structure which will see ‘lay’ members playing a majority role in the setting of ethical standards and the disciplining of accountants.
But he also dashed the profession’s hopes of a root and branch review of the law of liability, so long cursed by auditors for preventing them from providing more in-depth information for clients. Instead, the liability issue will be examined as part of the ongoing Company Law review – but any change in the law could take several more years.
To say the profession was thrilled might be overstating it. But the word ‘delighted’ tripped easily from the lips of the English ICA’s president Chris Swinson. His pleasure is understandable. The government has largely followed the regulatory proposals developed by the Consultative Committee of Accountancy Bodies under Swinson’s leadership.
The CCAB’s ideas – enshrined in ‘Modernising Regulation: Becoming Accountable to Stakeholders’ – were submitted to the DTI in draft form earlier this year. The move to LLPs is an added and welcome bonus, and takes away some of the disappointment over the lack of action on the liability law.
Inevitably, the government’s plan – which is now out to consultation for two months – is a slightly watered-down version of the profession’s.
Trade minister Ian McCartney, who was responsible for overseeing the government’s review, has gone further than the profession would have liked on the issue of lay membership of bodies.
As one Big Five partner put it: ‘Politically, we knew it was not going to go all our own way. McCartney had to prove to his political colleagues that he was no pushover.’
Roger Davies, PricewaterhouseCoopers’ head of professional affairs, said the debate about the level of lay representation has run its course. ‘We’ve got to make sure it damn well works now,’ he added.
That issue aside, the two documents are remarkably similar in their content.
The CCAB believes the proposals will protect clients by making the profession more accountable to external interests, ensuring continuous independent review of standards and procedures and gaining public confidence in the impartiality and effectiveness of professional regulation and discipline.
The regulatory changes may not have such an obvious impact as the move to LLPs. Firms are expected to rush towards adopting LLP status once it becomes available. The profession’s push for LLPs, which saw Price Waterhouse and Ernst & Young help with the creation of LLP law in Jersey, is likely to throw up its own problems.
Sue Chisman, a KPMG partner, said: ‘In this age of business accountability, it is likely that firms operating as UK LLPs will be those most sought after by clients, recruits and suppliers.’ She warned, however, that partnerships will need to consider the impact on staff and clients of knowledge of profit shares.
Partners, said Chisman, may come under greater pressure to justify their profits and the role of partners may be up for review. Firms will need to examine how best to present their annual accounts and communicate them to interested parties.
PwC is understood to still hold an interest in registering offshore, but would drop the idea if a mainland alternative became available. Ernst & Young senior partner Nick Land said his firm was considering the option.
With such success in winning LLPs and an acceptable form of self-regulation, the profession will continue to fight for the review of the law of liability.
PwC’s Davies added: ‘There’s an invitation to contribute to the debate from the government and that’s exactly what we’ll do. We are not asking to avoid paying for our mistakes, but we are not in the business of paying for other people’s mistakes.’
DTI PROPOSALS FOR THE PROFESSION
1. Professional regulation Review Board, funded by a ‘no strings’ endowment from the professional bodies to an independent foundation, will scrutinise ‘public interest’ regulatory activities and all monitoring and disciplinary work. The board will oversee the Auditing Practices Board and Ethics Standards Board.
All the bodies will consist of 60% lay members.
2. Limited liability partnerships Should be available by next summer. They will ensure that the liability of innocent partners is limited to their stake in the firm. Professional partnerships will continue to be run as such, but must assume the external rights and responsibilities of a company, including financial disclosure and appropriate insolvency arrangements.
3. Professional liability No sufficient basis identified for a ‘fundamental’ reform of the law of joint and several liability, which can mean auditors pay all the damages in a case while other negligent parties do not. Government urged accountants to pursue the matter under the ongoing Company Law review.
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