BACKGROUND

10   There is a legitimate and substantial public interest in arrangements to ensure that professional activities in whatever field are conducted effectively and with integrity. The public is not always well placed to assess directly the quality of the professional services on offer, but has a reasonable expectation that it can rely on the professional title. Equally, the members of the profession have a powerful long term self-interest in maintaining the reputation of the profession as a whole. There is, therefore, a close alignment between public and private interests in maintaining and developing rigorous professional standards.

11   The question for public policy is what system of regulation and discipline of the accountancy profession not only best serves, and is seen to serve, the overall public interest but also has the capacity to adapt as public interest considerations develop. The Government believes that these objectives are best met by a system of regulation which works closely with the profession but is independent of it.

The current position

12   With the exception of investment business, insolvency work and company audit work, there is no regulation of the accountancy profession in the UK by statute. In the three "reserved" areas, the professional accountancy bodies themselves play the central regulatory role, under the supervision of the DTI or the Treasury.³

13   Standards and the protection of the public interest therefore depend on:

• the control of members’ qualifications and registrations by the accountancy bodies⁴;

• the supervision of members by the accountancy bodies, including the setting of ethical standards and disciplinary procedures;

• the setting of auditing standards by a Board⁵ under the auspices of the accountancy bodies; and

• public regulation of company auditors, financial advisers and insolvency practitioners.

14   In addition, the form and content of published accounts are regulated by the Companies Acts and accounting standards. There is no intention to alter the system by which the Financial Reporting Council, the Accounting Standards Board and the Financial Reporting Review Panel⁶ uphold accounting standards.

15   Establishing an independent system of regulation covering all the activities carried out by the accountancy profession essentially concerns the second and third of these bullet points. The current arrangements for the training, qualification and registration of accountants will remain the responsibility of the accountancy bodies. In relation to auditors, these activities are regulated under the Companies Act 1989. Nor is it a part of these proposals to change the other statutory requirements. The regulation of investment business is governed by the Financial Services Acts. Under proposals published by H M Treasury in July those members of the accountancy profession carrying on investment business will require authorisation directly by the Financial Services Authority. Insolvency work is regulated under the Insolvency Act 1986 and the Recognised Professional Bodies and DTI are carrying out a separate review of the regulation of insolvency practitioners.

Options for implementing a new framework

16   There are two basic options for implementing a new framework: a statutory solution, either using powers contained in the Companies Act 1989 or through new primary legislation, or a non-statutory solution - based on the professional bodies’ existing powers over their members.

A statutory solution using powers contained in the Companies Act 1989?

17   Under section 46 of the Companies Act 1989 the Secretary of State may by order establish a body corporate to exercise his functions for the regulation of company auditors. While this would have the effect of establishing regulation independent of the profession its scope would necessarily be restricted to company auditors. It would not, therefore, fulfil the commitment for a new framework for the accountancy profession as a whole.

A statutory solution using primary legislation?

18   The most obvious example of using primary legislation to create an independent regulatory body is the Treasury’s recently published draft Financial Services and Markets Bill, which will introduce a single regulator for the financial services sector in the form of the Financial Services Authority (FSA). The idea would be to create a body on similar lines for services provided by accountants.

19   This approach would increase the area of statutory regulation beyond the three reserved and regulated areas into a wide range of general business, tax and accounting advice, for much of which accountants are in direct competition with unregulated businesses. However, the Government is not persuaded of the need for statutory regulation, provided that an effective, transparent and genuinely independent framework can be achieved effectively by using a non-statutory route.

A non-statutory solution using the existing powers of the professional bodies?

20   In "Modernising Regulation", the professional bodies set out their proposals for a new framework in response to the Government’s manifesto commitment. This would rely on their existing powers to regulate their members, would cover all the activities of the profession, and could be implemented within a year of agreement.

21   The Government sees significant advantages in this approach, not least the timing of implementation, the coverage, and the commitment of the profession to making the scheme work. The Government recognises the very considerable efforts and thought which the accountancy bodies have put into developing their proposals.

22   The announcement on 17 September 1988 made clear that the Government had concluded that a similar approach should be followed, but with important changes to establish more firmly the commitment to "independence" in the Business Manifesto. It is by no means obvious that the structures which might be developed under a statutory solution would be so very different in practice from what is proposed. The Government intends to monitor the new arrangements carefully and to review their effectiveness after five years; the option to move to a statutory solution remains were the Government then to conclude that the goals of effective, transparent and independent regulation were not being met.
 

BACK   ⁴ Association of Chartered Certified Accountants, Association of International Accountants, Chartered Institute of Management Accountants, Chartered Institute of Public Finance and Accountancy, Institute of Chartered Accountants in England and Wales, Institute of Chartered Accountants in Ireland, Institute of Chartered Accountants in Scotland - see Glossary.

BACK   ⁵ Auditing Practices Board - see Glossary

BACK   ⁶ See Glossary