Governments love to get more power. Better still, they love
to get more power but still be able to avoid the consequences if something goes
wrong.
So we have a body such as the Financial Reporting Council which
oversees corporate reporting and auditors and which doesn’t appear to get fined
for bad supervision when financial reporting or auditing goes wrong. And now, at long last, we have a study – more
than one – as to what has gone wrong, and surprise, surprise, the solution is
to give a regulator a new name and more powers.
The contradiction in thought is no more apparent than in
those new powers. It is proposed that
ARGA (The Audit, Reporting and Governance Authority) is have full supervisory
powers over all work that accountants do, rather than just audit, including in
the words of Report : “all aspects of the chartered bodies’ regulatory
functions, including training and qualifications, licensing, practice
assurance, complaint handling, disciplinary procedures, and governance
arrangements.” It is also proposed
that ARGA should set ethical standards.
So in one power grab, ARGA will become the body in charge of
examinations, admission to membership, standard setter, investigator and
disciplinary body.
The argument in favour of setting up the Independent disciplinary
structure within ICAEW, which we were pushed to do and have done, was that one
body should not be in charge of setting standards, qualifications, investigation
and discipline. Nonetheless, those are
the powers that ARGA looks like getting.
What applies to accountants will also apply to directors, at
least of PIEs and corporate reporting under these proposals.
It’s rather as if Parliament was allowed to act as lawmaker,
police, judge and jury. And that is
never a good system.
As yet, giving all these powers to a single body, let alone
an appointed quango, has yet to be challenged.
But it needs to be.
If we look into further contradictions in the approach,
recall the powers that are being given to ARGA in respect of the accounting
profession. Then consider that the
Brydon Review also recommended that any new regulator should have powers to act
against companies were there were reasonable concerns over a wide range of
matters including issues with reporting, governance, audit and viability. It was also recommended that there should be
powers to step in when a company was in distress.
The Government’s response has been to reject those
recommendations. The argument is that “would
be a radical shift away from the UK’s approach to corporate governance, in
which best practice is encouraged through a principles-based approach and
through disclosures to shareholders, rather than through regulation. This
system is highly regarded around the world.”
Well, it would. But
that argument is not being used for the audit and accountancy profession. In fact, quite the contrary. What is being proposed is substantially more
regulation. This, despite the fact that our
profession is highly regarded around the world.
Indeed, given that audit failures (of which there are few) only have an
impact if there were governance failures, or bad business decisions, within the
audited company first, one might argue that the approach being taken is not
only inconsistent, but backwards.
It is, of course, easier to pile regulation onto the
accountancy profession than it is to deal with any root cause of lack of trust
in business, or the profession, if it actually exists or indeed is a problem.
And it is far easier to avoid being blamed for anything that goes wrong, if you
can pass that blame onto the accountancy bodies or to the shareholders.
That is not to say there is nothing that needs to be done or
that there is nothing good in the BEIS Report.
It is a huge curate’s egg and I will dive into bits of that rather
scrambled egg in future posts: but a
regulatory power grab is not the best way of improving audit. Unless of course, you are regulatory
centralist at heart.
