A number of high-profile auditing scandals have smeared the image of the accounting profession internationally - but it is striving to recover AS MANY COMPANIES and businesses discover, trust that takes years to win can be lost in a matter of hours. For accountancy firms and auditors, association with an enterprise under the regulator's spotlight or found to be operating in an inappropriate manner can be disastrous. For the Big Four professional service providers - PricewaterhouseCoopers, Deloitte Touche Tohmatsu, KPMG and Ernst & Young - along with many second-tier and smaller companies, independence from a client's business and strong ethical standards are extremely important. PricewaterhouseCoopers partner Roger Knight said to maintain credibility, business and ethical standards need to be consistent with international best practices. 'We must continually focus on raising the bar and building public trust,' said Mr Knight, who is responsible for PricewaterhouseCoopers' internal business conduct. He said widely publicised commercial crime in Hong Kong and international reporting and auditing scandals had put a dent in the image of the accounting profession, but the industry was making strident efforts to recover. For PricewaterhouseCoopers this has prompted a review of the company's methodologies and internal processes. 'At a broad level, ethical standards have always been the bedrock of the wider accountancy profession. This is why businesses pay for our services and independence,' Mr Knight said. The collapse of WorldCom and Enron raised questions about the independence of their auditors and brought into focus higher expectations from the public. As a result, regulators have insisted that the rules for auditors be tightened. Mr Knight said a key challenge was to educate clients and those in the profession to be aware of the rules and operate beyond mere compliance. Compared to 10 years ago, those joining the profession need to equip themselves with a broader range of skills that include understanding international regulatory requirements. To ensure independence, PricewaterhouseCoopers operates a system that identifies members of staff who may hold stock in a company they are involved in auditing. There are also briefing sessions for all staff and management to ensure that the latest regulatory processes are understood and implemented. Mr Knight said that on the mainland, where many firms were just beginning to learn the processes of compliance and international regulations, complex situations often occurred due to lack of education rather than any deliberate wrongdoing. This could involve the question of providing financial and advisory services to a client and then being asked to carry out an audit. 'Often it is necessary to explain that enterprises should employ two companies, one to provide accounting services and one to provide auditing services,' he said. Rapid growth and restructuring from state-owned to private enterprises have taken place at a pace never seen before. However, educating companies that fair and transparent accounting services are critical to providing good corporate governance is of fundamental importance in the mainland today, where a healthy corporate sector is vital for continued growth. Duncan Fitzgerald, PricewaterhouseCoopers partner, said for long-term success, mainland enterprises needed to employ their own internal accountants familiar with international best practices. Mr Fitzgerald said accountants in the mainland sometimes had a tough time and were often perceived by their clients as expensive necessities that add little value to the growth of a company. He said their image at times reflected the old-fashioned view that they were boring number crunchers and regulation facilitators. Typically, much of an accountant's time in the mainland was spent ensuring compliance, he said. 'Aside from providing information on the performance and position of the business itself, accountants are also often expected to take responsibility for regulatory requirements. 'When this happens, the ability of accountants to provide extra value to their services can be limited.' To make matters worse, standards of corporate governance are changing rapidly in response to random events that capture the public's imagination. Mr Fitzgerald said red flags for potential problems often included a decline in a client's customer demand; highly complex transactions which the clients normally would not enter into, and repeated attempts by management to justify its accounting processes. 'Failure in corporate governance is a real threat to the future of every corporation. The consequences of a major financial scandal involving a mainland global company listed on the New York Stock Exchange would be disastrous,' Mr Fitzgerald said. Those companies with effective corporate governance based on core values will have an added competitive advantage, attracting talent and generating positive reactions in the marketplace.