Let's not go mad for regulation
Just as the profession was recovering from the fallout of various well-documented financial scandals, the Parmalat affair once again prompted regulators in Europe to seek the introduction of new forms of control.
Link: Small practice guide
Parmalat may have thrust some of the old issues, such as auditor rotation, back under the limelight. But I don’t think the case warrants radical changes in the accountancy profession’s level of regulation – and certainly not the current move towards increased regulation.
The current system allows for a degree of necessary flexibility. Over-regulation has the potential to be very damaging to the profession, and would not be in the public interest.
ICAS agrees with the Auditing Practices Board that ethical standards should be established for all audits, but we do not believe the APB has struck the appropriate balance between requirements applicable to all audits and additional provisions applicable only to public interest audits.
If the ability of audit firms to provide advisory and business support services to smaller businesses is affected, it will result in a loss of expert business advice or an increase in professional advisory costs for smaller companies. Across the economy, this could severely suppress the viability and growth of small businesses, at a time when the low business start-up and survival rates are causing concern.
For all audit clients, the auditor’s objectivity is paramount, but for non-public interest clients, independence needs to be carefully balanced against the other benefits the client/firm relationship brings.
The issues raised for listed company/public interest client cannot simply be applied directly to non-public interest companies.
That said, I do believe the profession needs to be more aware of the public’s perception when considering changes to the way it operates. If we cannot convince the man or woman on the Edinburgh, Clapham or Glasgow buses that we are right, we may need to look again. Perception is going to be very important in the battle to win back public confidence.