World Congress: wake for self regulation or rebirth of a profession?

John Prosser reports on the 16th World Congress of Accountants in Hong Kong

Recent accounting scandals have thrown professional accounting into a �credibility crisis� at a time when the general public �have a stronger demand for open, truthful and accurate accounting information and, in particular, for timely access to newer and greater accounting services,� said Chinese Premier, Zhu Rongji, in his opening address to the 16th World Congress of Accountants in Hong Kong. He urged that all accountants should �strictly observe the principles of independence, impartiality and fairness and never succumb to pressure�, adding that, in China, accounting and auditing were converging into the �international mainstream�. Above all, his adopted motto for the two new Chinese National Accounting Institutes for professional education, opened in Shanghai and Beijing, �make no false accounts�, was a phrase which was to resonate throughout the Congress in the ears of a chastened profession.

Paul Volcker, former chairman of the US Federal Reserve, cemented the Premier�s remarks in the minds of delegates, saying: �We are, quite simply, at a truly critical point in the history of your profession. What is at stake is the credibility of a profession that, in fact, relies on that credibility as the bedrock of all it does.�

Premier Zhu�s remarks were also echoed by Chinese finance minister, Xiang Huaicheng, who said that the Enron and WorldCom scandals had not only dealt �a heavy blow� to the US economy, but had also �impacted seriously upon the global capital market.� The minister called for a strengthening of co-operation at a global level, adding that, though competition was important currently, co-operation was even more desirable. He advocated greater harmony in accounting and auditing standards, strengthening independence, monitoring and supervision of accountants and improved corporate governance.

A numbers game

Incoming IFAC President, René Ricol, said that there were over two-and-a-half million accountants in the world who, he said, were �indispensable for the well-being world economy.� In a fervent opening speech, he urged accountants to �act everywhere in the public interest, to galvanise energies, solve complex administrative problems, help innovation, create trust�: �Our mission is to make sure that those things are done that need to be done, things that can improve the quality of life of our fellow citizens.� He focused centrally on integrity as a key word in the accounting lexicon, suggesting that integrity rather than independence should define the profession. Accountants must, he exhorted, �organise a consistent web of qualifications all over the world, so that anyone can precisely know which qualification corresponds to which skill. To share the same skills means having a basic permanent training� it means having pride in our profession� it means sharing a passion for quality of accounts and their audit, for taxation, for information systems, for management controls and systems.�

West must practise what it preaches

Paul Volcker acknowledged that recent financial scandals had badly damaged confidence in the US accounting system, saying: �I do not think it reasonable today, if it ever was, to take the position that US GAAP should, de facto, be the standards for the entire world.� Volcker, who is now chairman of the Oversight Trustees of the International Accounting Standards Board, added that the aim was �to find a consensus on clearly defined principles, and� the American authorities appear sympathetic to that objective.� But he reminded delegates that responsibility for the crisis in confidence did not rest solely at the door of auditors. He referred to Alan Greenspan�s description of �infectious greed� in the hitherto booming American markets as leading to �investment banks and consultants developing complex schemes of financial engineering, much of which had as their raison d�etre, ways around accounting standards and tax regulations�. And he conceded that it was time for the Western world, which had pointed a critical finger at lax corporate governance, poor accounting and �crony capitalism� in Asia, to acknowledge that the �problems are not limited to the emerging world� and that industrialised Western countries, including the US, should �practise what they preach�. Volcker called for high quality, enforceable standards backed by an institutional mechanism for effective oversight.

Tell it as it is

IASB chairman, Sir David Tweedie, reminded the profession that it would get the standards it deserved and that the Board would begin with an attempt to enable the profession to work with shorter standards, asking the profession: �Can you use your judgement to handle the problems we haven�t covered in the standard?� He assured the profession that, if it failed to demonstrate the necessary judgement, standards would become longer and more detailed as necessary. He uttered his now familiar mantra that the profession had a �once in a lifetime� opportunity to get this right and that the next three years would be critical.

IFAC pursues ethical agenda

Senior IFAC members outlined at the Congress how the organisation will help the profession rebuild itself and go forward in the knowledge based economy. IFAC Ethics Committee chairman, Marilyn Pendergast, highlighted five critical factors which impact on all accountants - integrity, objectivity, professional competence and due care, professional behaviour and confidentiality. Referring to the IFAC Code of Ethics, reissued in January 2002, Pendergast said there was a clear need to adopt global solutions to ethical dilemmas. She added that this did not mean a denial of local values, but she emphasised �we need to harmonise our ideals�. The Code of Ethics is currently being further revised to include the role of the accountant in management, conflicts of interest, preparation of financial information, professional competence and colleague support.

The right model more important than greater regulation

Proponents of greater regulation of the accounting and auditing profession should not be unduly influenced by recent US legislation, warned ACCA, adding that the loss of confidence in the ability of the profession to regulate itself could not be solved merely by adding independent members to existing governing boards or councils. Nor was there a need to copy the onerous form of direct government intervention, imposed on the US accounting profession by the recent Sarbanes-Oxley Act.

Speaking at the Congress, Anthea Rose, ACCA�s chief executive, said: �Pure self regulation may no longer be appropriate for statutory accounting bodies. But direct government intervention in the regulatory and monitoring process would undermine professional judgement. There is also a danger that it would stifle innovation as accountants seek merely to demonstrate minimum compliance rather than striving for continuous improvement in standards.�

Citing the new oversight system in the UK as a possible example, Rose argued that the best balance may be obtained through the model of �independent regulatory agencies, composed of a mix of senior accounting and auditing professionals and a majority of informed non-accountants, drawn from all sectors of the user and public interest community.�

ACCA believes that all professional bodies should adopt fully transparent disciplinary procedures. Cases involving significant public interest issues relating to alleged under-performance or negligence should be dealt with by procedures which are demonstrably free of direct political or professional control. ACCA also believes that audit monitoring by a specialist unit of the relevant professional body remains a superior alternative to the now largely discredited peer review approach. Control of professional ethics should stay within the profession itself.

�But we should try to achieve a balance. We must protect the public interest - and we must be seen to do so. And we must also protect and enhance professional standards and independence. There is no conflict between the two. Rather the reverse: the best protection for the public comes when professionals work to the highest technical and ethics standards,� said Rose.

Turkey on the menu for 2006

The 17th World Congress will be held in Istanbul in November 2006, and will be hosted by the Expert Accountants� Association of Turkey and the Union of Chambers of Certified Public Accountants of Turkey. Istanbul has hosted a number of major international conferences recently, including a medical conference for 10,000 delegates.

Full details of the Congress and many of the presentations may be found at www.wcoa2002.com.