Government questions self-regulation of professional accounting bodies

Treasury has questioned whether conflicts of interest could undermine the ability of leading professional accounting bodies (PAB) to govern their own members.

In a consultation paper released on Friday, Treasury invited public feedback on whether PAB self-regulation may not be “fully effective” due to perceived conflicts and information sharing issues.

Ram Subramanian, interim head of policy and advocacy at CPA Australia told Accounting Times that the questions raised in the paper are “necessary,” adding however that they are only “potential issues.”

“As evidence is collected and considered, it may emerge that they are not actual issues,” he said, noting that “trust in the accounting profession remains high.”

CA ANZ similarly embraced the consultation while urging that its outcomes “do not disproportionately impact the majority of Australia’s hardworking accountants, in particular our members in small and medium sized practices.”

The consultation paper referred to “certain tensions” implied by a majority of PAB revenues coming from the fees paid by their members and their conflicting roles as bodies charged with promoting good behaviour among members and simultaneously advocating on their behalf.

“There is a perceived conflict of interest between the role of the PABs in managing the conduct of their members, given that membership fees are a significant source of income for the PABs and their role in representing the interests of their members,” wrote the FRC in a report cited by Treasury.

“Whilst each PAB has adopted processes to enhance the independence of their disciplinary functions, the perceived conflict remains,” it added.

The extent to which professional bodies are expected to regulate their members was a point of confusion throughout the joint parliamentary inquiry into consulting.

PABs are not regulatory bodies, though they are empowered to hold their members to account for breaches of professional standards under their by-laws.

The by-laws developed by PABs, which concern the rights and obligations of members and the obligations and powers of the professional associations, bind their members as contractual terms.

They delineate certain offences and the consequences of engaging in proscribed behaviour.

PABs carry out internal reviews of their members to ensure compliance with their by-laws and can launch investigations where complaints have been made.

As noted by a spokesperson for CA ANZ, “Government has announced and re-affirmed the end of self-regulation in audit on numerous occasions dating back to the Corporate Law Economic Reform Program (CLERP 9) in 2004, and Treasury’s major Strategic Review in 2010.”

“Nonetheless, gaps remain in both the powers and resources provided for Government oversight of large audit firms and this paper reveals there is still an opportunity for clarification of roles and expectations, including Government’s expectations of its own role and that of other bodies.”

Beyond perceived conflicts, Treasury also raised concerns that PABs are hampered in their ability to compel their members to provide information. It also referred to broader information sharing challenges between PABs and regulatory bodies where breaches have been identified.

This point was considered in some depth by the Senate consulting inquiry, following revelations that the TPB had failed to inform CA ANZ of a sanction against one of its members, a former PwC partner accused of leaking confidential government information.

By failing to inform CA ANZ, the members resignation was accepted, thereby preventing the professional body from launching an investigation against him. The rule preventing CA ANZ from taking disciplinary action against former members has since been overturned following a successful member vote last year.

While the government has announced reforms to secrecy laws which will allow the ATO and TPB to share further information with professional bodies where needed, Treasury suggested the reforms might not go far enough.

“Questions remain as to whether further barriers exist that reduce the likelihood that partners, directors, or other staff report misconduct to professional bodies, such as whether there are privacy concerns or fears of reprisal,” it said.

CA ANZ said it will prepare a detailed submission on behalf of its members in response to the Treasury consultation paper.

“We anticipate this will be a valuable opportunity to reset and clarify expectations among all stakeholders, particularly when it comes to audit regulation,” a CA ANZ spokesperson said.

They added that the consultation paper touched on many issues CA ANZ had previously advocated for including acting on the recommendations of the audit regulation inquiry; extending ASIC’s jurisdiction to regulate audit firms; extending and strengthening whistleblower protections; removing barriers to “appropriate and necessary” information sharing between agencies and professional bodies; and increasing the transparency of large multidisciplinary firms.

Subramian added that CPA is supportive of “well-considered and evidence-based” reforms, adding that they should be designed to limit their impact on small-to-medium sized practices.

“Like any profession, it’s important that the regulation of the accounting profession is subject to periodic review. It’s important for all parties to approach such reviews with an open-mind and to work collegiately to find the evidence to inform the issues under consideration,” he added.

“Reforms must be evidenced-based – reform proposals driven purely by perceptions must be avoided.”