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An endangered profession

Yezdi H. Malegam

PROFESSIONAL developments in newer areas have been possible because the marketplace has accepted that accountancy firms can provide credible service in areas other than traditional accountancy services. But this does raise the challenge of identity. Thes e services, though provided in the firm's name, are more often provided by persons who are not accountants but members of other disciplines and the only link with the profession is often the firm name.

There must surely come a time when using such a name and describing the firm as an accounting firm will be positively misleading. As this trend develops, the profession will increasingly need to address itself to the issues of regulation and disciplinary jurisdiction over the firms and the persons who provide these services under the umbrella of the firm's name. In the alternative, it may become necessary to accept the pressure of market forces and create a well-regulated framework for the creation of m ixed partnerships, separate from accounting firms.

There is another aspect of this matter which needs to be considered. The large accounting firms are increasingly describing themselves, not as accountants, but as `business advisers' or variants of that term. Perhaps they are doing so because a large par t of their people are not accountants but members of other disciplines. Perhaps they want to convey the message that they are competent to render a variety of services, other than accounting, which others traditionally render.

The danger, of course, is that other disciplines which consequently feel threatened will retaliate by offering to do work which is the traditional preserve of accountants. First steps in this direction are already seen in the areas of taxation, managemen t audit and internal audit. Those that will get most hurt are unfortunately the small practitioners, a substantial portion of whose fees come from traditional services.

This brings us to the challenge of image. Trust in a profession is critical both for the individual practitioner and the profession as a whole. As Prof. Limperg has stated, if confidence is betrayed, the accounting function too is destroyed. And one of t he ways in which confidence is betrayed is if there is under-performance. There is some evidence that confidence is getting betrayed gradually on this account not merely in this country but also abroad.

In a speech at New York University in 1998, Arthur Levitt, Chairman of the SEC, stated that there was being witnessed a gradual but steady decline in the quality of accounting, and competitors ``operate in the grey area between legitimacy and outright fr aud. A grey area where the accounting is being perverted, where managers are cutting corners and where earnings reflect the desires of management rather than the underlying financial performance of the company.''

In similar fashion, the chairman of a major company in the UK had this to say: ``The profession believes that because it can count the wealth, it can create the wealth and indeed it has managed to give the impression of wealth creation when the reality m ay in fact be wealth dissipation. This is what is known as `creative accounting'... Accountants are highly innovative in thinking up ruses that appear to be in the public interest but in reality only serve to boost the profession's income...But despite a ll this I wouldn't be without accountants and I adore their pompous self-importance, their capacity for humbug, which would be the envy of a bishop, their spectacular refusal to communicate in clear English and their ability to take everybody to the clea ners -- shareholders, managers, governments -- and to complete their work without incriminating themselves, and despite the profession's name, without actually being accountable.''

These may be extreme statements but they suggest that whereas the profession accepts that quality of work can differ significantly as between professionals, this range of service quality is not acceptable to the public at large or even that it is possibl e for the market to judge relative quality. What the public wants is not the brilliance of the few but the competence of the many.

There is, therefore, a danger that the trust that the public once placed upon the profession may be gradually eroded. This could have several consequences, First, there could be a demand for more regulation which could in turn result in a loss of freedom , discretion and autonomy. Second, whereas in the past clients have accepted that as a profession operates in the sphere of judgment, its members would act in good faith but could not guarantee an outcome. The clients would now be intolerant of failure a nd increasingly prone to take legal action to recover damages.

What is equally important is that the profession should not allow its value system to deteriorate. What is vital for the profession is the respect which it commands, not merely its size or profitability. These should be the results of its vision, not the vision itself. No doubt the Institute has a code of conduct which it enforces. But a code will operate in practice only when the Institutes' membership shares the ethical principles that underlie the code.

In the past, this attitude to principles was, at least to some extent, shared as many felt pride in belonging to the profession and that by upholding its principles, they were doing something good. Unfortunately, a degree of cynicism is gradually creepin g in and membership of the profession is seen only as a means to achieving wealth and consequent success. This is a dangerous trend which needs to be arrested.

If the profession wants to improve its image, it must also be willing to take proactive steps -- like its counterparts in other countries -- to help find solutions for issues which are of national concern. Among the most important of these is the issue o f corruption. Transparency International releases periodically its rankings of corrupt countries. We cannot be proud of our ranking. At the World Congress in Paris in 1997, the World Bank president, Mr James Wolfensen, urged the delegates to be in the fo refront of the fight against corruption and the IFAC has put the item on its agenda.

Similarly, fraud is a significant burden and a hidden tax on the consumer. The English Institute has sponsored the Fraud Advisory Panel, an independent body of experts from across the public and private sectors, which have identified a number of initiati ves that, with appropriate support, could do much to tackle fraud head on. We could also make a beginning, perhaps in public sector banks with which the profession is so much involved.

Thus, recent developments in the social and economic environment, particularly the developments in technology, have thrown up challenges which endanger the very existence of the profession. It is clearly not possible for the profession to survive in its present form if it has to adequately meet these challenges. It, therefore, needs to quickly identify these challenges, devise appropriate responses and implement the same in time. If it does so, a new and stronger profession will emerge.

This needs the combined efforts of the Institute and of its individual members. Those who adapt to the new environment will sustain and enhance their image and prosperity; those who do not, will be washed away by the tide of change.

(Concluded)

(Edited excerpts of the P. Brahmayya Memorial Endowment Lecture organised by The Society of Auditors, Chennai.)