This is not the time for a fallout in the accountancy profession. The current financial climate requires everyone to work together to fly through the economic turbulence and ensure a safe landing
If there is one thing that recent history has taught us it is that, whatever economists and accountants might say, the rest of the world thinks about and uses money in their own way. It has long been recognised that there is a psychological aspect to the way economies work; what is new is the realisation that raw emotion comes into it too. So it is time for the accountancy profession to rethink its approach. Just as you would have thought the UK needed its financial experts to be working together, it seems that we may be taking our eye off the ball.
The recent decision of the Chartered Institute of Management Accountants to leave the Consultative Committee of Accountancy Bodies threatens to end the unified approach that took 100 years to create. The move follows a dispute with other CCAB members over the fees payable to the statutory regulator, the Financial Reporting Council.
CIMA believes that as a non-audit body it has been paying disproportionate amounts to support the audit profession, rather than management accountancy. It sees its role as ‘to develop and support the role of financially qualified business leaders who work in organisations around the world’. Audit has limited relevance to that agenda in its view.
Well, perhaps so but it is hard to see how it can be good for the future of the profession in the UK, and it comes at a very bad moment.
Most finance professionals in the public sector work as management accountants, so one can see where CIMA is coming from. The body that has done more than anyone else to pioneer business partnering in finance may well be frustrated by the apparent obsession of much of the rest of the profession with external reporting. The fact is, though, that the two aspects are two sides of the same coin.
In the public sector, we understand the importance of our relationship with the decision-makers in our organisations, and never more so than now. Dealing with the current public spending deficit without wrecking public services in the process is like trying to land a jumbo jet on the deck of an aircraft carrier in a Force 9 gale (the Force 9 helpfully provided by Secretary of State Eric Pickles in local government’s case). Good financial management will be vital to achieving the seemingly impossible goal, and finance folk need to be in the cockpit.
In the circumstances, more than one treasurer must have asked themselves why we are footling about with International Financial Reporting Standards while the real task in hand is to find 10% cuts to next year’s budget – followed by further similar sized cuts every year into the foreseeable future. It feels like the equivalent of fiddling while Rome burns, and one worries whether the accountancy profession in the twenty-first century will go down in history with a reputation almost as good as Emperor Nero’s.
But public accountability remains an essential part of what accountants do. The clue is in the name. On a global level, in the aftershocks of the credit crisis, accountants need to be asking themselves why so many financial institutions had extended themselves beyond their capacity to recover from a series of serious market fluctuations – and why the balance sheets of those banks did not adequately reflect the risks they carried. The regulatory regime for certain types of credit derivatives was left up to the banks and their regulators; did the accountancy profession just go along with it? Whatever the answer to that question, as a Lords’ select committee recently pointed out, it is incumbent on the accountancy profession to make sure that we are part of the solution.
In fact, even local authority treasurers have to admit that IFRS have their positive points. One is that public-private partnerships have at last been brought on to the balance sheet, so we can begin to consider what happens when all those deals start to come to an end over the next 15 or 20 years.
Again, in the public sector, we have seen in the UK a burgeoning of interest in financial accountability, in the form of transparency and armchair auditing. The media are now starting to question whether publishing all items of expenditure over £500 is that useful – too much detail, not enough context.
Well, the experts could have told them that. It is important that we help people to come to the answers that they clearly want and need. In that respect, external reporting in the public sector is an essential part of the democratic system, no less than making sure elected representatives have the financial information they need.
Accountants need to be actively involved in the transparency debate, helping people to get to grips with what financial information is actually telling them and how best it should be presented.
In a 2009 book on the banking crisis, Fool’s gold, Gillian Tett points out that the word ‘credit’ comes from the Latin credere, ‘to believe’. Similarly, accountants need to remember that ‘audit’ comes from the Latin root, audire, ‘to listen’. As a profession we must never forget to listen, both to those inside organisations who demand our advice and to those outside them who require information on what’s going on internally. Recent history shows that listening to one but not the other can have perverse consequences.
The fact is that accountancy has long been about looking inwards into organisations to make sure decision-makers make the best financial decisions for themselves and their customers. For even longer, it has been about opening up what goes on inside organisations so that their finances can be understood by parties on the outside. That twin role is vital, and it is in the public interest. It makes no sense to think of the business of the profession as two distinct parts, one facing inwards and one facing outwards. The skills required are the same, as is the approach: openness, empathy and integrity.
We should be concerned that if management accounting and audit go their separate ways, much will be lost. Come what may, CIPFA must find a way of continuing to work with CIMA, as I am sure it will. This is not the moment in history for accountants to lose the plot.
Alan Finch is head of finance at the London Borough of Tower Hamlets
