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Biz Buzzby IRIS & AVED

Over the past two days, the members of the Institute of Chartered Accountants discussed, at their national conference, six issues facing the profession under the theme 'Keeping on Track'. A month ago, the World Congress of Accountants examined the Knowledge Based Economy and the Accountant.

Accountants, regarded as dull and conservative people with number-crunching skills, demonstrated at these two events, their involvement in almost every sphere of economic activity, agility, flexibility and robustness.

Surprisingly, just one year after Enron, the accountants devoted very little of their global and local conference time to debate financial reporting, its failures and solutions.

Enron, WorldCom, One Tel and the half dozen or so corporates in the U.S. that fell from the top of the chart to become worthless entities during the tumultuous year raised perhaps the most crucial issue facing the profession's core group; the auditors.

Locally, the troubles at the Pramuka Bank have raised embarrassing questions to the Chartered Accountants in practice. The public, quite rightly, ask how reliable the auditors' opinion on financial statements is.

Those who have lost their lifetime savings invested in failed corporates and worse still, deposited in failed financial institutions are likely to challenge the policy makers in Government, the regulators such as the Central Bank and the Institute of Chartered Accountants and the very accountants who have failed to discover corporate misdemeanour in public fora, in the media and possibly in Court.

Legislation relating to financial institutions and other corporates recognise the risk of management (directors and their senior managers) falsifying financial statements. For over 100 years, business statutes have sought to protect investors and creditors by requiring that the financial statements prepared by the management should be audited by independent professionals - the Chartered Accountants (or Certified Public Accountants in some countries including the United States). The profession of accountants had largely grown around this statutory function which still provides the bread and butter to the majority of accountants in public practice. Why has it then failed?

At the core of the problem is the conflict between the professional obligation to report independently and objectively on the financial statements audited and the auditors' commercial (self) interest. This conflict will continue as long as the accountants are asked to perform a quasi judicial function, while their appointment and remuneration are determined by the equivalent of the litigants or worse still, the accused.

The present system, that had lasted for over a century in its fundamental structure, is based on restricting the entry into the profession of auditing to those who have undergone adequate training and developed an independent and objective mind to be able to examine financial statements and report on their truth and fairness.

This responsibility is given, again by statute, to the Institute of Chartered Accountants. While the national conference, which concluded yesterday, suggests that the members of the Institute have been given and continue to receive proper professional training, its emphasis on developing the right set of professional values, including in particular the mindset on independence and objectivity (except for one paper by Nivard Cabraal, a past president of the Institute) was not enough.

Independence of the auditor has to come from a realisation that it is the fundamental attribute and duty of those in the profession.

The training of Chartered Accountants should inculcate the independence of mind and other values essential for a profession that has been entrusted a quasi judicial function. Taking to court the auditors who have failed in their duty might persuade the not so upright auditors to stick to the values, but the challenge before the profession is to make independence and objectivity the core values voluntarily adopted by its members. If the profession of Chartered Accountancy fails in this duty, legislation has to and will come to entrust the audit function or the selection and appointment of auditors to a central authority or regulator.

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