Accountants urge worldwide approach to industry revamp
Financial regulators worldwide should work together on reform of the accounting industry and improvement of corporate governance to deal with problems highlighted by the collapse of Enron, according to a British accounting body.
The Association of Chartered Certified Accountants (ACCA) believes the process of appointing auditors should be reviewed to ensure their independence from management.
It also calls for tighter monitoring of auditing, measures to improve corporate governance including a stronger role for non-executive directors, and changes to United States accounting standards.
'The collapse of Enron has highlighted there should be a review of the regimes for monitoring practice in auditing, financial reporting and corporate governance,' Andrew Harding, executive director of professional standards at ACCA, said in Hong Kong yesterday.
'Issues of auditor independence should be revisited and the relationship between a reporting entity and its professional advisers should become more transparent.'
The collapse of Enron has prompted calls for reform of the accounting industry, as financial statements that did not disclose massive debt were approved by its auditor, accountants Arthur Andersen.
Arthur Andersen's dual roles of auditor and financial consultant also created a conflict of interest.
Mr Harding said the Enron collapse had shown the need to review the process of appointing auditors.
'Although in theory this is a matter for shareholders, in practice the appointment is controlled by management. It may be time to see if this can be changed,' he said.
Mr Harding said the ACCA believed non-executive directors should play a greater role in choosing auditors.
He said ACCA also believed US companies should adopt more of the International Accounting Standards (IAS), instead of the US domestic standards.
Investors were not alerted to Enron's debt because much of it was hidden in off-balance-sheet finance arrangements which, according to US standards, did not need to be disclosed.
Mr Harding said that under the IAS, these problem loans would have had to be disclosed.
He strongly supported a move by European countries to move towards adopting international standards in the next few years.
Britain, China and Hong Kong use standards similar to the IAS.