APESB calls for tougher standards for large professional firms

The Accounting Professional & Ethical Standards Board (APESB) has outlined a wide range of measures that could be adopted in order to address some of recent ethical failing of large accounting firms.

In a submission to Parliamentary Joint Committee on Corporations and Financial Services, APESB highlighted some of the measures that could help improve the ethics and professional accountability of large professional services firms.

APESB said it is considering the development of a standard similar to the UK FRC's Audit Firm Governance Code that focuses on the culture and governance of large professional services firms in the Australian environment.

It is also looking to develop a specific standard on management consulting services, which includes requirements relating to confidentiality, conflicts of interest, financial interests, and business relationships, and would apply to all professional services firms.

It will also work with IESBA towards strengthening the global Code on issues that impact firm culture and governance.

APESB said the government could look at developing a rigorous Code of Ethics (such as APES 110) that could be applied to all professional services firms or persons that contract with or provide any form of professional services to the Government.

“This requirement to follow a Code could be embedded in legislation or government contracts. However, governments need to monitor and sanction inappropriate behaviour that departs from the requisite standard of conduct,” the submission said.

APESB will also consider whether there is merit in developing a professional agnostic APES 110 and a professional standard for management consulting that could apply to all professionals.

Improving transparency

The transparency of large professional service firms could be enhanced by requiring them to prepare general purpose financial reports including remuneration disclosures, the APESB said in the submission. These reports would be subject to audit and filed with ASIC and would be available for public inspection.

APESB said this would be a better alternative to forcing large firms to adopt a corporate structure in order for them to be covered by existing regulatory frameworks as this would result in significant taxation and operational costs.

Large professionals firms could instead be treated in a similar way to public interest entities for financial reporting purposes.

This change could be implemented by:

• mandating the categorisation of large firms with substantial revenue, assets and workforces as PIEs;

• requiring large firms to prepare general purpose financial reports, including the disclosure of remuneration and information relating to their operations, and subject them to audit or alternatively adopting the disclosing entities disclosure requirements of the Corporation Act 2001; and

• adopting remuneration and accountability practices observed in APRA-regulated listed entities.

Transparency could also be improved with professional services provided to public interest entities and government by extending the financial statements disclosure from fees paid to the entity’s auditor for audit and non-audit services to all fees paid to professional services firms for all services provided to the entity, it said.

“We believe this might also assist in identifying the objectivity and conflict of interest issues associated with professional services firms providing services to government and public interest entities,” the submission stated.

Independent body to monitor professional services firms

It has also called for the establishment of an independent body to monitor all professional services firms that provide audit, assurance and consulting services.

“This would broaden oversight from just accounting practitioners and could capture those firms and entities currently not subject to statutory regulatory oversight who provide those services,” APESB told the PJC inquiry into the audit, assurance and consultancy industry.

“This independent body will undertake enforcement actions where appropriate and prepare public annual reports of its monitoring and enforcement activities to enhance public trust.”

Extending the ethics module in mandatory CPD

APESB has also called for enhancements to the existing ethics module of the professional programs and mandatory continuing professional development of accountants by increasing coverage of the APESB Standards.

“APESB is of the view that there should be a higher focus on continuing professional development for accountants on ethics. Currently, the education requirements of the professional accounting bodies vary, with mandatory ethics training ranging from a few hours to 20 hours per triennium,” the submission stated.

“There are also varying requirements concerning the ethics component of the professional programs undertaken by the students of the professional accounting programs.”

APESB said it understood the public outrage with the ethical failings of large accounting firms and shared the public’s concerns.

“Professional and ethical standards are the cornerstone of the accounting profession. We believe that a strong framework of professional and ethical standards assists accountants in addressing ethical issues when they arise and, when adhered to, establishes robust professional conduct,” said APESB.

“Adherence to ethical standards contributes to confidence in capital markets and accountants' outputs for clients and employers.”