The National Business Review (New Zealand) May 21 1999

ACCOUNTANCY: Trade or profession?

Endorsement raises questions about institute judgement
Code of ethics needs to be fully embraced, writes Alan Robb (senior lecturer in accountancy at the University of Canterbury, New Zealand)

Four pillars of a profession are personal responsibility for work performed, peer review of the standard of work, on-going education and observance of a code of ethics.

As a university academic committed to act as a critic and conscience of society I am increasingly questioning whether the Institute of Chartered Accountants, to which I have belonged since 1970, can still be called a profession.  All four pillars are being undermined from within, sometimes following overseas developments.

Personal responsibility is being replaced by incorporation of accounting practices with limited liability.  Where this is not done many accountants have moved assets into trusts and away from the reach of litigation according to the Institute.

At present in New Zealand auditors cannot shelter behind a corporate entity because the Companies Act requires audits to be carried out by natural persons.  But here, as elsewhere auditors allege that the number and cost of claims in negligence lawsuits has become excessive and that they need limited liability.

They provide no evidence to justify this claim.  Analysis by the Association for Accountancy & Business Affairs suggests that the actual cost in the UK is probably less than 3% of fee income.  Hardly the crisis situation that auditors would have the community believe!

Peer review is the second pillar being undermined.  The Institute has a formal process by which public practitioners undergo a review about once every five years.  But what happens if the competence of a chartered accountant is challenged in a court case?

One would expect that members of a profession would be prepared to testify as to what is acceptable practice.  However, it was recently reported in the Chartered Accountants Journal (April 1999 p70) that “The major accounting firms have in place a protocol agreement promising that none will give evidence criticising the professional competence of other Chartered Accountants.”

As a result of this agreement the case before the High Court was dismissed for lack of evidence.  How can this protocol agreement, which arguably impedes the course of justice, possibly be consistent with paragraph 3.1 of the Institute’s Code of Ethics which says that “A distinguishing mark of a profession is acceptance of its responsibility to the public”?

A third pillar of a profession is on-going education by members to update their knowledge.  The ICANZ runs a number of continuing professional development courses each year.  Ostensibly these meet designated quality procedures involving “approval by the Professional Development Committee”.

The recent decision to approve the “World Masters of Business” Seminar as approved professional development makes me doubt the value of the Institute’s quality assurance process.  All 26,000 members of ICANZ received a letter and brochure urging them to enrol and “learn from those who have excelled in their own right”.  Al ‘Chainsaw’ Dunlap was lauded as being “recognised worldwide for his fearless approach to massive cost cutting in order to turn organisations around.”

As I reported last week that, is what Al Dunlap claims he does.  But the facts show otherwise – “In his …turnarounds he has made some changes that were considered cosmetic and scooted off to do another restructuring before getting credit or blame (Fortune, 12 Jan 1998); he has used accounting “hocus pocus” (Forbes, 4 May 1998) and “accounting gimmickry” (Fortune, 20 July 1998).  At his most recent “turnaround”, Sunbeam, his financial statements affecting three financial years had to be withdrawn and re-issued.  The auditors who had accepted his accounting policy choices resigned.  I question the professionalism of the institute in promoting Al Dunlap as an “exceptionally talented and inspirational” figure.

I also question the relevance of the topic – cost cutting and downsizing.  On 22 March 1999 the feature story in Business Review Weekly began:  “Downsizing is dead.  The corpse remains to be buried and the autopsy is still to come, but the once notorious management fad has been swiftly dispatched by chief executives across Australia whose new focus is on growth.”

The report quoted Professor Roger Collins of the Australian Graduate School of Management as saying that his studies showed that “High-performing companies are not downsizing.  It is no longer fashionable. … through downsizing, companies lost a lot of skills that we really needed.  I think we used a machete where a scalpel might have done a better job.”

The managing director of Coles Supermarkets put it much more bluntly:  “Downsizing was bullshit.  A company’s people are its most important asset; we’ve been saying this for years and we’ve been putting on more permanent staff to prove it.”

I question why the Institute is lending its name to publicity for an out-of-date fad of questionable effectiveness.  In Dunlap’s case its success appears to be partially due to accounting sleight of hand.

In my view the Institute’s support for the World Masters of Business conflicts directly with the behaviour expected of members in the Code of Ethics.  Referring to the promotion of professional services the Code requires members of the Institute to avoid, as unacceptable, those forms that:

The publicity for the World Masters of Business appears to contain all these unacceptable attributes.  If a member of the Institute should avoid such unacceptable behaviour surely the Institute itself should behave likewise?

It is no defence to say that the Institute was not the preparer of the advertising.  That argument is not available to a member.  The Code says that “A member will be held responsible for the form and content of any advertisement, whether placed by the member personally or by another person or organisation on the member’s behalf, and for any publicity which the member expressly or impliedly authorises.”

The Institute should be setting the standard it exhorts its members to follow if it wishes to be seen as a profession and not as a trade association.