In 1996 Ernst & Young decided to publish its first full plc-style annual report and accounts. This move was based on the simple premise that transparency and openness are fundamental elements of good business practice.
And good business practice is what we, as business advisors, preach every day to our clients. So you might say our annual report was conspicuous by its absence.
In fact a survey at the time justified our decision – a Mori poll found that 93% of directors of top businesses, banks and investment companies believed that accountancy firms should produce the equivalent of a company’s annual report.
One should never underestimate the power of one’s own internal corporate culture in influencing how you are perceived by the outside world.
At Ernst & Young we have always worked hard to develop a corporate mindset based on being genuinely open with our people.
It was a natural progression therefore for us to release our financial figures internally as well as opening ourselves up to public scrutiny by publishing independently audited accounts.
With the benefit of hindsight, the publication of an annual report and accounts is a ‘no brainer’. My only regrets are that we hadn’t made this progress sooner; and that some of our peers continue to lack the self-confidence to follow suit.
We view our annual report and accounts as an important business tool; a showcase for our firm’s achievements and challenges over the previous 12 months. Although we do not have outside investors to communicate with – like all large organisations we do have important stakeholders.
Aside from the fact that potential clients want to know that they will be dealing with a firm that believes in one of its core services, namely, financial reporting, our annual report offers an ideal opportunity to tell our clients and our people more about the firm they are involved with.
Finally, producing an annual report and accounts gives valuable employment to journalists. They seem to take inordinate pleasure in finding out what I and my fellow partners earn and write reams of copy about it.
- Nick Land is the UK senior partner of Ernst & Young
Publishing annual accounts has become a crucial weapon for some accountancy firms to wield against their rivals in the increasingly frequent battles over public awareness and accountability.
Publicly available, independently audited annual accounts provide clients, stakeholders and the public with transparency and openness. These attributes are further driven home when there is no legal requirement to currently do so.
Big Five firms Ernst & Young and KPMG have led the way in the accountancy profession for a number of years by voluntarily publishing their accounts. They are the only two of the Big Five firms to do so.
Yet partnerships have no legal obligation to allow the public to pry into what partners claim are their own private affairs. Some would argue that this would be on a par with publishing their personal bank statements.
The firms do however produce their accounts for bankers and any other professionals that need to see them for purposes of growing the business. Besides that, why should firms publish their accounts? Where is the public interest?
At the smaller end of the spectrum there appear to be few arguments that stand for the publication of accounts. Representatives of small and medium-sized firms say unless a firm was planning to move up a tier there are no drivers at all to make a firm want to go public.
Firms are wholly owned by the partners unlike in public listed companies where the shareholders are the owners. Partners of accountancy firms, or for that matter, any other partnership would argue that the only reason there are demands to publish accounts is for pure unadulterated curiosity – to see how much the partners earn.
But, these partnerships and particularly the Big Five firms, are vast organisations that work for the world’s largest and most lucrative businesses. And it is here that critics point to the need for transparency and openness.
The new model, limited liability partnerships will, however, provide a compromise which is already benefits for some firms. In exchange for reducing partners’ liability, firms have to publish accounts. It will be interesting to see if the other big firms working for, and in, the public interest decide to take up the compromise.
Added to this need for openness are the growing calls for businesses to not only include financial data in their annual reports but also non-financial data. And it is the Big Five firms that are pushing these changes to their clients. Shouts of hypocrisy are beginning to ring louder.
- Michelle Perry edits Accountancy Age’s Opinion page
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