Future of Self-Regulation
Author:
Brian Walsh
[Excerpt] One of the recommendations of the DIRT Inquiry Report recently published was that a Review Group on Auditing be established by the Tanaiste and Minister for Enterprise Trade and Employment to examine a number of issues concerning the auditing profession which were raised in the Report. The Tanaiste, for her part, had decided to add on two further issues to those included in the PAC Report as follows:
- Whether self regulation in the auditing profession in working efficiently and consistently;
- Whether any new or revised structures and arrangements are necessary to improve public confidence, and if so, what form should they take.
Self regulation, and whether the Institute should be a self regulating body, has become an issue for members as well, particularly those in smaller practices, over the past year or so. Prior to the General Practitioners Conference in Galway in October 1999, the Institute issued a questionnaire on regulation. Over half of the participants responded and of those 67% agreed that it was in the interests of practitioners that Regulation in the areas of audit, financial services and insolvency should be carried out by the Institute on an agency basis. 19% neither agreed nor disagreed and 14% disagreed.
At the Conference itself there were strong opinions expressed which favoured the Institute opting out of agency regulation. The main driver behind this view was that government regulation would ensure that there was an even playing field for all practitioners, financial advisers etc - all would be subject to the same level of government regulation. However, some also felt that there was far too great an emphasis on regulation by the Institute to the determent of support and advisory services.
It was against the above background that the Council considered the future strategy of the Institute in relation to self-regulation at its meeting on 9th November 1999.
The Institute receives approximately 100 complaints a year which may come from members of the public, clients of members, other accountants, a government department or the Institute's own Quality Assurance Department. Approximately half of these are resolved by the Secretary who is empowered to take conciliatory action while the remainder are considered by the Investigation and, if appropriate, the Disciplinary Committees.
- Proactive agency regulation is carried out by the Quality Assurance Department. There are fifteen employees in that Department which include five fulltime reviewers who will visit approximately 150 firms in the year 2000. The Department also ensures that practices have Professional Indemnity Insurance, analyses Annual Returns and grants Audit, Investment Business and Insolvency Licences (N.I.).
- We currently have two public concern cases running in parallel (Blayney and Powerscreen) while others may commence following consideration of the DIRT Inquiry Report by the Complaints Committee. Public Concern inquiries are expensive (£460,000 to date for Blayney, £200,000 provided for Powerscreen) but costs may be recovered in certain circumstances.
Benefits of Self-Regulation
As is evident from the introduction to this article, the effectiveness of self-regulation is now being questioned, not just by government but by members as well. Amid all this hype however, it is worth setting out the advantages of self-regulation to members and to the public.
- The regulatory work is carried out by professionals who understand the work involved, the standards necessary and who are in a position to more rapidly identify poor work.
- The regulation is carried out at no cost to the exchequer.
- Self-regulation enforces the Institutes stature as a profession. It allows for the development of regulations by like minded professionals which are appropriate to the structure of professional firms and which take into consideration the nature of the relationship of a Chartered Accountant with his/her client and the manner in which services are provided.
- It is more cost efficient for members than a government scheme which would not be concerned to keep the costs as low as possible.
- It allows for regulation in a non-court forum - providing for confidentiality when appropriate.
- It facilitates the striking of a balance between light handed and heavy handed regulation. It can be more effective in separating the "sad" from the "bad" cases.
- It allows for a strong focus on prevention and education.
- Most importantly of all it allows members a means for holding the regulator accountable through the democratic structure of the Institute
Having said all that however, in terms of public perception, it is fair to conclude that self-regulation does not currently enjoy a high level of public confidence. So what have we done and what do we intend to do about it?
What we have done
The Institute has made significant efforts in the recent past to improve public confidence and address members concerns. We have committed ourselves to the publication of the findings of the Blayney and Powerscreen Inquiries. We have established new rules which allow for improved investigation systems and open hearings in public concern cases. We have publicised more widely the outcome of disciplinary hearings. From the members point of view we have introduced a new quality review system which involves a visit cycle of between two and ten years based on risk assessment. There is now a single visit covering all the professional activities of the firm instead of the three possible under the old system and we have been very active (and successful) in making representations to the Central Bank, the SRA Implementation Advisory Group and the FSA/Treasury in the UK which will reduce the regulatory burden on firms conducting low risk activities.
Future Strategy
At its November 1999 meeting the Council considered a number of options which included arguing strongly to retain the status quo and moving to pass agency regulation back to government. After much debate, however, it was decided to work to retain self-regulation but adapt it to meet external and internal concerns. It was decided to explore certain actions which would show the Institute's resolve to make self-regulation more effective from a public accountability viewpoint and more efficient from a practitioner viewpoint. To this end we will be making a very significant submission to the Review Group on Auditing established by the Tanaiste. It will contain imaginative and workable suggestions which will address the issue of accountability, the establishment of an even playing field as regards regulation for all accountancy bodies and the protection of the integrity of the audit process. It also contains suggestions for making self-regulation more effective.
From the members' point of view, we will be expediting our programme for reducing the regulatory burden. Matters being looked at include a single regulatory fee which will be invoiced with the annual subscription, a single, more user friendly annual return and improved communications on regulatory matters.
There has seldom been a more challenging time for the accountancy profession.
Accountancy Ireland Vol 32 No 1 February 2000