What is wrong with the present structure of the Accounting Profession in NZ.

Well quite a lot really. While it delivers knowledgable and skilled accountants there is little or nothing in place to ensure that quality is delivered. This stems from a lack of democracy in the current representative organisation and the presence of 5 large firms which dominate it.

The partners of the "big 5" firms not only have a special allegiance to their 100 odd partners but also to the partners of the other 4 firms. They have special disputes procedures for disputes between one firm and another, aimed presumably at protecting one another and keeping malpractice hushhush. For a detailed example see below.

The Institute of Chartered Accountants of New Zealand operates a so-called quality assurance program but releases virtually nothing about malpractice which has come to its attention or what it has done. If a member of the Institute has been convicted in court of fraud or a similar such crime the Institute is likely to conduct an enquiry of its own and impose an additional fine onto what the Court has already imposed as the appropriate penalty for a professional person so convicted. It occasionally names other members who have offended in some way and discloses the penalty imposed but nothing about what they have done. One surmises that they have outwardly displayed bad manners, perhaps swore at a client or member of the public (the communication is always about bringing the Institute into disrepute) but there little if any evidence of members getting into trouble for bad or false accounting unless it has resulted in a fraud conviction.

Recent annual reports of the Institute have referred to matters of discipline in a matter of a few standard sentences. It mentions the number of complaints received (usually a little over 100) and the percentage resolved be mediation. But as to questions of trends in malpractice and where the line is to be drawn, nothing is to be heard.

It is submitted that the issuing and revamping of standards by the Institute is actually working against reliable quality accounting. There is invariably a time lag between the committing of acts of accounting malpractice and it coming to the attention of and being investigated by so authority. The standard opinion on the matter is often along the lines that while a very high and clear-cut standard now exits for the matter, at the time the alleged offence was committed standards in that connection were quite difference and it is difficult exactly what was acceptable at that time. The issue is fudged to get the offender off the hook.

This procedure is highlighted in the Accountants Journal of New Zealand, volume 78 No 6 of July 1999. On page 21 an article comments on the release of Exposure Draft 86: Provisions, Contingent Liabilities and Contingent Assets and begins

"A client of yours has made a large net surplus for the year.............. Your client wants to reduce this year's reported net surplus by recognising a provision and expense for future operating costs. Can the client do this? Traditionally entities have recognised provisions for future operating costs. However ..."
and it goes on to explain how ED 86 is going to put an end to or "stamp out" this sort of thing.

It is submitted that accounting theory has long considered the issue of the treatment of potential future expenses as expenses in the current years accounts. Certainly there are some situation as when the years output has been found to be defective and inevitably significant expenditure will be required in the future to put things right for clients. These considerations have all been well canvassed, especially in the formation of tax law. However normally future operating costs will be properly financed out of future revenue and the idea that it has been acceptable to defer the recognition of income by simply making up a journal entry making reference to future operating costs is an insult to the teaching of the profession. The article however will be good defence for anyone accused of understating income by such a method up until ED 86 is implemented. And if an insider accountant is so tempted after that time, not to worry, a new super standard will probably before he is brought to account which will suggest that N0.86 is so inferior that its not worthwhile upholding a breach of it.

It is appropriate also to refer to the editorial on page one of the above journal which focuses on reporting standards. "The catchcry in business is globalisation" it starts off. That may be so but whether accounting bodies should be chasing catchcries, as the editorial appears to assume it should is another matter. Accounting should not be a fashion industry. Rock solid accounting principles gleaned out of history should be the order of the day.

The same day as that journal issue was delivered The Evening Post at page 2 carried an article quoting the United Nations Report on Human Development as saying "Globalisation is putting a squeeze on care and caring labour. When the profit motives of the market players get out of hand, they challenge people's ethics - and sacrifice respect for justice and human rights".

The next topic adresses an alleged case of serious accounting malpractice which has gone unrecognised by the Institute of Chartered Accountants of New Zealand and its predecessor.

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