RegulationAccounting StandardsOut of the counting house: accountancy’s future

Out of the counting house: accountancy’s future

After leavng ACCA, Dr Steve Priddy assesses the future of the profession and the institutes

We need to be honest if we are to see clearly into the future. The practice
of accounting is underpinned by a series of sometimes questionable ass­umptions.
Let us consider some of these in turn.

1. Businesses are global

If we mean by this that the world’s economy is dominated by corporations
whose place of incorporation is incidental to its operations, then there are at
most a handful of global businesses. BP, for example, much in the press these
last weeks, is America’s biggest oil and gas producer. It has 40% of its assets
located in the US. It employs 30,000 workers in the US, as compared to 10,000 in
the UK. It is international, not global, and this is not a trivial distinction.

Moreover, the last two decades have seen the relative decline of the large
corporation and the relative growth of small and medium-sized enterprises around
the world.

2. The accounting profession has international standards

Do we? International Financial Reporting Standards are used by listed
corporations, a minority of the world’s corporate stock. These standards are in
various stages of implementation in different jurisdictions. They are challenged
by those who question their legitimacy in terms of the oversight process that
leads to their existence and the apparent reluctance of standard setters to
consider societal impact and unintended consequences.

3. Principles-based standards are better than rules-based

Perhaps, but without a clear definition of what constitutes a principle as
opposed to a rule, it is difficult to make the distinction. In the meantime,
complexity in standards continues to run wild.

4. Accounting records past transactions

Not so. Even the most rudimentary set of financial statements is shot through
with assumptions about the unknowable future. Companies’ accounts are prepared
on a going concern basis. This feeds into assumptions about provisions and
impairments, useful economic lives, the value of long-term contracts and work in
progress, and most controversially into post retirement benefits. All these
assumptions are based on the centrality and the dangerous simplicity of a
compounded and discounted future.

5. Accountancy has international institutions

In a trivial sense, this is true. The International Federation of Accountants
exists. There is an International Accounting Standards Board. The Big Four, five
or six firms claim to have a global presence. Yet, the events of the last two or
three years show in practice how weak these international institutions are.

Audit has done what it says on the tin, but this does not seem to mean very
much. Regulatory arbitrage has been rife.

With only a few notable exceptions, accountants and accounting bodies have
not stepped up to the mark and said that things cannot carry on the way they did

So, what can we say looking into the future?

Carbon has to be cut out. The sense of a carbon crunch has just become more
tangible. Pension and other fund managers will need to address more closely than
ever before the carbon liabilities (and assets) they hold in their portfolios,
both now, and a long way into our decarbonised future. Accountants, working
alongside engineers and scientists (and perhaps actuaries?) must address this
market failure as a matter of urgency.

The future role of audit in society becomes ever pressing. The scope of audit
must evolve. The space for professional judgment needs recapturing. In part,
that will be facilitated by sensible and proportionate limitation of liability.
Proactive audit committees will also help. And international governance
arrangements of the large audit firms will need to be clarified and

The role and size of the public sector in all of the world’s economies will
need to be rethought, going back to basic principles. Accounting and accountants
will have a key role to play in this transformation. Accountants will have to
think more deeply and more carefully about outcomes, rather than outputs. The
nature of public-private partnerships will also need to be re-evaluated – again
accountants will have a role to play.

The practice of accounting must catch up with the technological leaps in ICT.
The best of corporations are highly predictive in their future thinking. Their
key metrics are geared toward where they will be in a year, five years, fifty
years, not what happened six months ago. Accountants will take to heart that
they are a tiny minority of the working population, yet it is this working
population that is motivated to produce and to add economic value. That
population needs financial information which informs and motivates, not obscures
and alienates.

Policy makers must “think small first”. In the EU, for example, it is
unacceptable that the increasing of audit exemption thresholds or the proposal
to scrap the annual filing of ‘micro enterprise’ accounts be done in the name of
removing regulatory burden. No evidence base exists for positive outcomes
arising from either of these changes. Indeed, it might be argued that the
propensity to increased bribery, corruption and money laundering is a result.

Accountants have a central role in objectively informing this important
societal issue. We cannot sit on the fence.

The accounting bodies and the educational institutions are going to have to
walk the talk of international standards and protocols. It is no longer
sufficient, on this rebalanced planet, to rely on white, male, English-speaking
practices. Even before the rebalancing, it was clear that “they do accounting
differently” in Germany and Japan, two of the most powerful economies in the
world. Nowadays, that diversity is considerably wider.

And what of the accounting bodies? The best will be those with the strongest
technical expertise, that invest most in their technical capability. The ICAEW
or ICAS or the Australian institute, for example, have an international
reputation and influence far beyond their home countries, and that is in large
part due to their considerable technical expertise and depth.

All this is much more than a rebranding exercise. It is about building on our
professional qualifications, our CPD and our ongoing educational needs to
prepare ourselves for the truly international, rebalanced, resource efficient
and sustainable future.

Dr Steve Priddy is former director of technical policy and research at
ACCA. All views expressed here are those of the author and do not necessarily
reflect those of ACCA.

Further reading:

ACCA restructure sees three

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