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ACCOUNTANCY TODAY
 
Struggle to head off a high-street rebellion
Robert Bruce from London
2/24/2006
 

          As so often happens, an issue regarded as small has triggered a huge and damaging row.
Through all of last year ,the introduction of a new accounting rule in the shape of UITF 40 was fomenting rebellion among smaller UK accounting firms. But the issue came to the boil only in early December when unprecedented attempts were made to table a motion of no confidence in Robert Hodgkinson, the technical chief at the UK's largest accounting body, the Institute of Chartered Accountants in England and Wales (ICAEW). The motion was withdrawn and the matter attracted little attention but the consequences will affect everyone in the profession.
UITF 40 is an abstract from the Urgent Issues Task Force, which comes under the wing of the Accounting Standards Board (ASB), and deals with revenue recognition in service contracts. That sounds innocuous, yet it has been anything but. As Martyn Jones, national audit technical partner with Deloitte, observes: "Clearly it hit a raw and commercially sensitive nerve."
Instead of accounting for the revenue on the completion of the contract, UITF40 requires providers, in most cases, to recognise revenue as contract activity progresses. Firms, particularly the smaller ones, faced being landed with a greatly increased one-off tax bill relating to revenue recognition for work in progress. There was uproar among smaller firms. They were already agitated by the ICAEW's efforts to merge with Cipfa, the public sector accounting body. This was another issue to which the small practitioners could nail their colours.
They pointed out that they were not represented on either the UITF or the ASB or on the financial reporting committee of the ICAEW.
They felt that while the accounting bodies were pressing on with technical work in areas such as international financial reporting standards or corporate governance, which small practitioners characterise as being done for firms and accountants working in the international arena, there was very little recognition of the world of the smaller firms.
Peter Hollis, chairman of the ICAEW's general practitioner panel, says: "Very large numbers of practitioners feel very let down by their institute."
Intense lobbying by professional bodies resulted in a Treasury concession that would spread the potential tax liabilities over several years. But the small practitioners were not placated, resulting in the attempt to table the motion of no confidence.
A furious meeting concluded with the motion withdrawn amid promises of better communication in the future, but behind the scenes members are still talking about taking the whole issue to judicial review.
This storm behind closed doors at an accountancy body has far-reaching implications. Accounting bodies have traditionally been the source of much of the long-term thinking that has influenced the wider business world, particularly in financial reporting.
For example, last year saw the 30th anniversary of the publication by the ICAEW of The Corporate Report, a document which has shaped much of what has happened in that field since. Similarly, the publication in 1988, by the Institute of Chartered Accountants of Scotland (ICAS), of Making Corporate Reports Valuable paved the way for much of what has happened since then to international financial reporting standards. If the pioneering efforts of the accounting bodies were to be reined in as a result of the need to placate the high-street end of the profession, then the consequences would be felt internationally.
Des Hudson, chief executive at ICAS, says: "I think what it has brought home to us is the difficult balancing act between being an advocate of members' concerns and exercising leadership. There will be times when you need to take the long view and to put leadership ahead of advocacy." Mr Hudson's counterpart, Eric Anstee, ICAEW's chief executive, agrees. "What the small practitioners want is a low-cost institute," he says. "But they also want a prestigious institute that has its voice heard. And that is not always the same thing."
Mr Hudson, like Mr Anstee, is also determined that top-end research and thought will continue. "Our tradition of free-thinking and blue-sky research alongside practical work will continue," he says. "It has always been a hallmark of ICAS research."
And there are other wider issues. Ian Mackintosh, ASB chairman, tends to sympathise with the angry practitioners.
"It has been an end of the market which has been ignored a little," he says. "We do need to be sure that we don't do that in the future."
But he points to further significance in the events. Technical changes that were introduced with regard to the largest companies are starting to affect everyone.
Mr Mackintosh says: "The change to the big end of town will filter down to the small end of town and that will continue. It was their first taste. The world is changing."
That is important. The smaller end of the accounting profession has probably observed the furious arguments about the growing influence of the principles of fair value with a degree of detachment. After all, those arguments have tended to centre on arcane areas of international business such as derivatives and financial instruments. These are seen as having little to do with the high-street end of accountancy.
But fair value, by which companies and firms controversially assign market-based values to their assets and liabilities, is precisely what UITF 40 is based upon.
It is a sign of division among accountants that Robert Bruce could see the UK profession going the way of the profession in the US where there is a sharp divide in size and clout between the mass of the profession that provides local accounting services and a very small sector that audits the largest companies, which are registered with the Securities and Exchange Commission, the main US regulator.
Mr Hodgkinson, at the ICAEW, says: "Arguments about whether the accounting profession should be oriented towards a regulatory model or the capital markets are profound issues."
The worry is that a perceived split in the profession between practitioners at the smaller end of the market and their larger counterparts handling international work could occur.
"The hope in the UK is that the basic principles of accounting will help the accountancy profession to stay together," says Mr Hodgkinson. "We need to keep a common professionalism while recognising that we go off to our specialisms and different sectors."
Under syndication arrangement with FE

 

 
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