Accounting for change

3 Sep 13

Steve Freer, CIPFA’s chief executive for the past 13 years, weighs up the significance for the public sector, the accountancy profession and the institute of this extraordinarily turbulent period

SIR MERVYN (now Lord) King’s recent description of his tenure as Governor of the Bank of England as ‘a game of two halves’ rings true for me. I have very similar feelings about my 13-year term as CIPFA’s chief executive. The global financial crisis, which was such a game changer for the Bank, has also had dramatic implications for both of the main spheres in which the institute operates: the public services and the accountancy profession. Many of its impacts have been – and continue to be – incredibly challenging. But in the way of these things, one or two of the thunderclouds have also come with unexpected silver linings.

Ironically, I qualified with CIPFA in 1976, an earlier era of great crisis for the UK economy and public services. While Denis Healey negotiated with the International Monetary Fund, Tony Crosland made his famous ‘the party is over’ speech to the public sector. Who would have thought that, 30 years later, the unravelling of risky sub-prime mortgages in the US would unleash a much more catastrophic international crisis, and that austerity – only on a much longer and more profound scale – would become the policy of choice across significant swathes of Europe and further afield?

Barely had the credit crunch morphed into the sovereign debt crisis when a first unexpected opportunity became apparent. Suddenly, the need for high-quality financial management in governments and public sector organisations was urgent and indisputable. Coincidentally, this breakthrough came just as the International Public Sector Accounting Standards Board was publishing its first complete set of public sector-tailored international standards.

This project had proceeded quietly in the back room of the International Federation of Accountants for a decade or more. With uncanny timing, it supplied one of the key missing ingredients for governments eager to implement better public financial management.

Subsequent events have involved a mixture of elation and frustration. Perhaps it is because there are very few votes in better accounting standards that progress is often ponderous and rarely dynamic. Nevertheless, as evidenced by the recent Eurostat report looking at the adoption of international standards throughout the governments of the European Union, there is a growing movement and momentum for change. Let’s hope it proves to be irreversible.

Let’s pray too for the public services. Given the unrelenting programme and scale of the funding reductions, it is very hard to be optimistic about the state they will be in at the end of austerity. But disaster is not necessarily inevitable. Perhaps another historical reference – the Thatcher reforms of the 1980s – is relevant here. They were also painful and unrelentingly grim. But ask anyone who worked through them in the UK public sector and, in retrospect, they will often give a surprisingly positive verdict, believing that organisations and the sector as a whole emerged leaner, fitter and, in many ways, stronger than before.

Perhaps we will say the same again, post-austerity. If we do, it will be a remarkable tribute to the skills of the current generation of leaders and managers who are up on the bridge, steering organizations through these incredibly hazardous waters.

Persistent criticism of those leaders and managers, often by government ministers, is one of the most regrettable trends of the past decade or so. The reality is that the vast majority of UK public services have improved efficiency and managed change well throughout this period, perhaps most graphically in the very recent post-crisis era. Of course, there have been exceptions, but they are precisely that – exceptions. The big picture is one of solid improvement and strong performance through a period of huge change – though the biggest challenges are still to come as austerity continues for several more years. Sadly, the modern contract seems to be that the successes are achieved by visionary politicians, while failures are down to inept management.

The accountancy profession has also experienced a torrid crisis, coming hard on the heals of the Enron  and WorldCom scandals of 2002, the fallout from which included the demise of Arthur Andersen, one of the profession’s most prestigious brands. This time, the crisis has raised fundamental questions about the nature of audit, auditor responsibilities and the competitiveness of the market for audit services.

Any number of inquiries have been commissioned and reforms recommended, including the Barnier proposals in the European Commission and the Competition Commission Review in the UK. Again, however, there is a frustration that the wheels grind very slowly, and there is still some distance to travel before a new auditing landscape emerges with clarity.

Meanwhile, the profession has become a reluctant  player in a quite separate post-crisis drama – the tax avoidance saga. This has the potential to run and run. It is very easy to see and to express outrage about the problem, whether it manifests itself through the affairs of wealthy individuals or global companies. But it is also very difficult to design workable solutions to make the problem go away.

Transnational audits and exotic tax-avoidance schemes might seem rather remote from the less-controversial roles performed by most CIPFA members who serve the public good by managing the financial affairs of organisations that provide essential public services. However, to the extent these isues can affect the reputation of our profession, they do matter hugely.

The profession has been a great success story for a century and more, and continues to grow globally as emerging and developing nations seek to emulate the success of existing developed economies. But ever-higher professional standards in all areas – accounting, auditing, ethics and education – will be required to secure its future. One of the threats to this process is competition between audit firms and also between accountancy institutes.

In many respects, competition is a force for good, encouraging innovation and responsiveness to the needs of modern business. But there is also a danger of a race to the bottom – a disproportionate emphasis on maximising the speed and minimising the cost of training an accountant to qualification, rather than a clear focus on the real prize: the professionalism and the skills, insight and judgment the qualified person is able to bring to bear.

CIPFA has attempted to steer its own difficult course through the choppy waters of the post-crisis era. As with every other organisation that serves the UK public services, it has been impossible to avoid the secondary effects of austerity. Our relative success in managing through such hostile conditions is testimony to the quality and value of many of the services we provide to the sector. Our members, in particular, stand as great advertisements for the institute and the profession, performing critical roles in public bodies throughout the land, and rising to ever more prominent leadership positions, especially in government departments.

Like many other accountancy institutes, we are clear that CIPFA’s long-term success depends heavily on our becoming a more international organisation. This is challenging, but in many ways, it is easier for CIPFA than for other institutes. We have the advantage of being the acknowledged experts in our specialist niche: public financial management.

CIPFA members should be very proud of how widely recognised the institute’s expertise is. Our stature and reputation has helped us to forge partnerships and win important contracts worldwide. We are currently working in Australia, Bangladesh, Canada, Lesotho, New Zealand, Nigeria, the Philippines and Slovenia, to name but a few. Our contract to train the staff of the United Nations Development Programme, based all around the world, is also highly significant in terms of developing a global systems infrastructure for CIPFA training and examinations. So there are many exciting developments under way to look forward to.

It has been a great privilege to lead the institute team through both halves of a fascinating period in CIPFA’s development. Of course, the crisis and austerity are not yet over. There will certainly be some more big waves ahead for Rob Whiteman and the team to negotiate. But I am confident they will keep the institute on course and ensure its future success. I wish them all the best in their endeavours.

Steve Freer stands down as CIPFA chief executive this month having led the institute for 13 years

This feature was first published in the September edition of Public Finance magazine

  • Steve Freer

    chair of Public Sector Audit Appointments Ltd and a former chief executive of CIPFA

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