Institutes urged to step up their monitoring game

Practices have long bemoaned the level of red tape they are wrapped up in.
The accounting institutes, meanwhile, maintain that their strict monitoring and
oversight role is vital to maintain public confidence in firms.

So the accounting regulator’s call for greater rigour from institutes in
reviewing firms has received a decidedly frosty reception.

The Professional Oversight Board (POB), part of the Financial Reporting
Council (FRC), reviewed the monitoring efforts of the CCAB (Consultative
Committee of Accountancy Bodies) affiliates, plus the Chartered Accountants
Ireland and the Association of International Accountants, in relation to
“non-regulated” accountancy services – in other words, any service to clients
bar audit and insolvency as these require separate licenses.

Among its eight recommendations it called on them to tailor their monitoring
visits to match their practices’ risk profile and comprehensively review
members’ compliance with the code of ethics.
POB said the institutes should also check that their members have adequate
procedures to deal with complaints and that issues raised by the institutes were
comprehensively responded to by the member.

Practices greeted the findings with concern, worried that any further burden
on them could prove to be the tipping point over which holding an institute
badge proves too costly.

“The ICAEW leaves no stone unturned [in a monitoring visit], it does too much
as it is,” said Barry Lewis, senior partner at Harris Lipman. “POB wants them to
look at the plumbing as well.”

The biggest gripe among practices is that while their institutes monitor the
so-called unregulated services of tax and accounts production, non-institute
accountants are not overseen at all, giving a cost advantage that puts them in a
position to under-cut their institute-monitored rivals.

Jonathan Russell, partner at ReesRussell and vice-president of the UK200
Group, questioned whether the institutes could introduce further rigour,
instead wondering if the POB is implying more frequent visits instead. Current
monitoring is understood to occur every six-to-seven years per firm.

The possibility greatly worries Russell. “As a small practitioner, it has
already reached a situation where the burden of regulation is making small firms
seriously consider whether they want to be registered.”

As for the quid pro quo facing monitoring, Russell wants a more proactive
approach from the institutes in promoting their member firms as the choice ahead
of non-qualified accountants. “Joe Public doesn’t understand the difference. The
institutes have to promote the profession.”

Lewis believes that one way to relieve the burden on both practices and their
clients would be to dramatically increase the audit threshold for businesses. At
the moment, those with a turnover of more than £6.5m, or assets worth more than
£3.26m, must be audited.

Raising the thresholds to £25m and £10m respectively would free practices up
to provide more consultative services to their clients, adding value rather than
added compliance work.

Providing compliance services is also off-putting to the next generation of
accountants, he warned.
“Clients don’t want to pay for no-value work,” said Lewis. “And accounting
students want to be entrepreneurial, not ticking boxes. We’re sitting on a

The ICAEW’s director of professional standards Vernon Soare said that POB’s
findings were “generic”.

“We’re always happy to improve,” said Soare. “But we are upfront about what
we do. We take ethics into account, with procedures in place if there is an
apparent breach. We’re happy to listen to POB, and will follow up with them.”

Soare added that there was a “fine balance” to be struck over making sure
that members provide quality advice to clients, but also considering the
regulatory overheads they face.

“We think that the POB understands that if we implement a higher bar then
that cost is passed onto clients, and there’s no longer a level playing field
[against non-institute rivals].”


MOT for the institutes

POB’s eight recommendations to the institutes:

1 One body should either amend its website or allocate additional resources
to ensure that effective monitoring, as it claims.

2 They should ensure that the nature and frequency of their monitoring work
is clearly and accurately explained on their websites.

3 The determination and assessment of best practice should be consistent
across all types of practice.

4 They should carry out a comprehensive review of ethical matters during
visits, in line with the code of ethics.

5 The bodies should review the internal complaints policy and a sample of
complaints received by the firm.

6 They should consider the benefits of tailoring their monitoring visits to
address areas of risk inherent to specific members.

7 The bodies should require the member to respond to all points and take
appropriate action raised during monitoring.

8 Review the responses they receive from members in practice in order to
confirm that these satisfactorily address the matters raised.

In our view

It’s clear that qualified accountants, rigorously monitored by their
institutes, face much higher regulatory cost overheads to non-institute. So it’s
time for the institutes to have another stab at gaining protection for the term
“accountant”, what with the new government in place. And while they’re at it,
why not push for a whopping great rise in the audit threshold as well.

Related reading

BAA logo _360x270