A few weeks ago I attended the World Economic Forum annual meeting, usually held in Davos and this year switched to New York to show support for the city after the atrocities of 11 September. Our Institute is the only accountancy body invited to the Forum sessions to meet and debate with the business and political world's key decision-makers.
The summit was dominated by questions about possible global economic slowdown and media frenzy surrounding the Enron failure. New York in winter can be exceedingly chilly, and the atmosphere for accountants was not helped by the welter of criticism heaped on the global profession by the US media.
I approached one session billed as 'Enron' with my hands covering my name badge! I waited patiently as three speakers discussed the impact of the latest corporate failure on the international markets. Slowly the debate came round to the point where the need for effective corporate governance underpinned by truly international accounting and auditing standards was mooted. It's an agenda we have promoted for over a decade, and it is finally beginning to register in the US. I forcibly made my points about the need for the US to consider other regulatory approaches than its own!
I was gratified by the level of support from a truly international, and highly influential, audience for the programme of corporate governance reform that has been led by chartered accountants here in the UK. It's a programme of reform that has created arguably the best, and most highly respected, business environment in the world. We cannot afford, however, to be complacent, and in the coming months we will be announcing major programmes of work to shape the corporate agenda for the 21st century.
As I write I am about to leave for a meeting in Washington with Harvey Pitt, the new chairman of the SEC (Securities and Exchange Commission). The meeting arose from a note I sent him not long after his appointment last summer suggesting that we meet to discuss our respective approaches to the regulation of the accountancy profession.
This meeting was delayed by the events of 11 September.
I will explain in detail why I believe that our form over substance approach, with ethical guidance, works more effectively than the US rule-driven approach. The SEC has already put on the public record its endorsement of the UK profession's approach to an independent regulatory framework, which provides public interest oversight of our members' activities.
There is a growing recognition that the UK accountancy profession has demonstrated that not only is it prepared to admit its mistakes but also that it is willing to learn from them. Of course, we have not done this alone - others, most notably the Department of Trade and Industry, have been heavily influential. Nevertheless, we can say that the profession here in the UK has acted and put its house in order.
We will continue to review and refine our approach where relevant. We will study new developments and new problems, wherever they arise in the world. There may well be lessons to be learnt. However, the changes we may need to make will be incremental rather than fundamental, building on, rather than replacing, the structures and standards we have in place today. Any changes must be justified by evidence, not by whim or short-term expediency. We will be commissioning thorough research in the coming weeks to better inform ourselves and those making policy decisions.
Some of the initial responses to the Enron crisis, such as the compulsory rotation of audit firms, would actually increase the risk of audit failure due to a lack of indepth understanding and familiarity with complex businesses in the first year or so of an audit. This in turn heightens audit risk as well as increasing cost and reducing service for the capital markets and the companies being audited. Equally, a prohibition on auditors providing to their audit clients the present restricted range of consulting services, such as tax advice, in accordance with our own Code of Ethics (now adopted by the International Federation of Accountants and the EU) attempts to solve a problem that does not exist. Independent investigation has not shown the provision of consulting services to an audit client as being a contributory factor in any corporate or audit failure and, over time, such a ban would reduce the quality of auditor which, in turn, will reduce the quality of the audit itself.
Our Institute has a long-standing record of willingly driving the process of quality and integrity. Government and regulators in turn have a responsibility to act wisely and proportionately. There is no systemic failure of financial reporting or auditing in this country and therefore no restructuring on a large scale is either necessary or appropriate. Of course it may be that some other countries have not developed as far or as quickly as we have, and they may now need to take more radical steps. Here in the UK, we need careful analysis and considered debate, leading to continuous improvement, not wholesale change. This is the message I will be robustly conveying in the coming weeks and months.
I briefly outlined the need for an above inflation fee increase in my column last month. Since that time our Council has met and overwhelmingly agreed that we should seek member approval for an increase in the basic subscription from £167 to £200, to take effect in 2003. We need this increase to support our investment in the value of our ACA qualification, and in particular to develop an international footprint. We also need to better fund our technical work and to more effectively promote our brand. I will use my next President's Page to set out the case for the increase, details of which can be found online at www.icaew.co.uk.