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(March-2002) Self-assessment doesn’t make the grade
The word ‘independence’ is receiving a lot of airplay and analysis lately. This time it’s the role of auditors that has come under the spotlight, particularly as a result of colourful corporate collapses both in Australia and overseas, and in the context of auditors who report on the financial affairs of superannuation funds and their related sponsoring corporations.
In the case of superannuation funds, it has now been recommended by the Senate Committee on Superannuation that the law be changed in Australia so it becomes illegal for a sponsoring employer’s auditor to report on the financial affairs of a related superannuation fund.
No longer will auditors be able to decide on their own independence pursuant to the profession’s ethical pronouncements — now the word ‘independence’ would effectively be defined in legislation, a feat attempted years ago in the Occupational Superannuation Standards Act (now the SIS Act) and subsequently removed because it became too difficult to interpret and administer.
As a result, the government of the day chose to rely on the professionalism of auditors to make a decision about the independence of their positions.
In cases where the audit of a superannuation fund and a related sponsoring corporation are performed by one and the same person or firm, the view generally taken by auditors has been that independence is protected and that conflicts of interest may be perceived, but are certainly not real.
This position by auditors has considerable merit, particularly given that a superannuation fund is, strictly speaking, unrelated to the employer, has completely different owners, is a not-for-profit trust fund and in almost all cases, is an accumulation arrangement with no real connection between the parties other than a regular defined contribution.
Conflicts between employers and trustees over contribution levels are now close to non-existent as defined benefit funds have fallen into the endangered species category.
The trouble is that times have now changed. To suggest that a superannuation fund auditor could actually be independent of a related corporate employer is treated with cynicism (just look at HIH and Enron!).
The political tide is clearly on the side of separation of duties and irrespective of the merits of the contrary case, those who would introduce legislation to define ‘independence’ are firmly in the driver’s seat.
Of course, the ultimate question is not whether yet more complex legislation should be introduced to regulate auditors, although that can surely be expected to happen so that politicians can demonstrate that ‘something is being done’ to protect the workers against the ‘axis of evil’ at the big end of town.
The ultimate question for the accounting firms is: What does it mean to be a professional?
Over the last 20 years, there has been a slow but steady move in the cultural foundations of all the traditional professions, from a position of conservative and fierce independence in the provision of professional services to a position where professional partnerships are often operated as revenue driven marketing machines. In many cases, services are treated as products, fees are referred to as ‘sales’ and the firm is run as a business to maximise profits for the senior executives, who used to be called partners.
These trends tend to put a question mark in the public’s mind over the independence of the professionals and their ability or willingness to act in the interests of clients who retain them.
I am not suggesting that the professionals have actually lost everything for which they used to stand.
I am suggesting, however, that there is a perception in the marketplace that all is not well and that auditors are not the 100 per cent independent professionals that we all thought they were.
Hence, talk of statutory enforcement of new independence standards — “If we can’t trust them to be independent, we’ll force them to be!”
Forcing people to adopt certain cultural mores rarely works. All it does is make the enforcers feel powerful and righteous.
However, it would be an outstanding outcome if the current examination of the accounting profession led to a self-assessment by all professionals that was deeper than just a superficial analysis of some obscurely worded independence standards.
— Robert MC Brown is the executive director of Bridgeport — Advisers & Asset Managers.
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