Regulation must match the needs of the public interest

Regulation must match the needs of the public interest

The row between CIMA and the rest of the working party rocked theprofession last week. Rod Hill and Chris Swinson make their points.

Members of the accountancy profession enjoy a special position within society. With it go privileges and rights. However, we have to ask what are the obligations which also go with this privileged position?

The current debate on regulation brings these matters into sharp focus. How can our professional bodies be acting in the public interest when they are primarily responsible for safeguarding and promoting the interests of their members? Equally important, how can they demonstrate to the world at large that they are doing so?

One way forward would be to demonstrate real commitment to serving the public interest by divesting the profession of its public interest activities, such as regulation, altogether.

It is now accepted that the setting of auditing standards should be wholly independent and free from the control and influence of the profession.

There is, however, disagreement over whether the new ‘independent’ Auditing Practices Board should go under a body which has to be built from scratch or under the Financial Reporting Council, a vehicle which is already established, demonstrably independent and has a proven track record.

The proposed arrangements to ensure the ‘independence’ of the Auditing Practices Board are, we believe, unduly complicated and bureaucratic.

It is particularly disconcerting that the new Board will continue to be wholly or largely reliant on the profession for its funding.

Accommodating the APB under a reviewed and revised Financial Reporting Council would be a logical and efficient move. The FRC is already established, operating and funded on a sensible and workable basis, and in a way which gives no one party any undue influence.

The bodies which it oversees have proved their effectiveness. The FRC and its associated bodies have demonstrated their ability to act independently of the profession – to enforce sanctions on both accountants and auditors, and command the respect of the business and financial community. It is generally regarded as an unqualified success.

Placing the APB under the FRC would, of course, require constitutional and other changes to the existing FRC. It is almost seven years since the FRC was established and a general review might be timely. Similarly, despite the convoluted structures which are being proposed to ensure a perception of independence, the Review Board itself is also expected to be reliant wholly or largely on the accountancy profession for its funding.

If funds could be attracted from other sources, this would only make the Review Board look more like a duplicate of the FRC – and an untried and untested copy at that. The scope of the Review Board and its impact and relationship, both in the short and long term, with the FRC and its associated bodies needs careful consideration.

The Swinson working party’s Consultation Paper, released last week, also touches on the standards of ethics and discipline in the profession.

CIMA believes that common standards of ethics could be agreed between the professional bodies. Much commonality already exists. But we should be careful not to fall into the trap of looking at this issue from a UK perspective. Accountants operate at an international level requiring international standards.

Common standards of ethics could be decided upon by international precedent, accredited by an appropriate external agency, adopted by the professional bodies and then individually tailored by them for their particular memberships and then applied.

This would ensure that each of these important public interest areas would be conditioned by external agencies demonstrably independent of the profession. There would be clearly documented, common standards which all parties could expect from members of the profession and the professional bodies themselves. The focus would be on substance not form.

The issue of the Working Party report on the Future Regulation of the Profession brings into the light CIMA’s disquiet with the proposed arrangements.

This should come as no surprise to those who appreciate CIMA’s dedication to achieving effective, efficient and economic regulation which is truly capable of meeting the public interest.

I would urge everyone to think carefully about the Paper and consider all the possible solutions when responding to it. Putting self-interest first will not be in the public interest, but by addressing the public interest first, self-interest will be met.

Rod Hill FCMA is president of the Chartered Institute of Management Accountants.

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