W(h)ither the accounting profession?

At that age where reminiscing is one of life’s remaining pleasures it is with fondness that early memories of the accounting profession come to mind. It may be that it was unwarranted hero-worshipping, but many newcomers to the profession held those referred to in that bygone era who were respectfully described as “qualified” accountants in the highest esteem. Undoubtedly young and impressionable, we held onto those images that we had created for dear life and it drove new entrants to the profession to try to achieve great things so as to gain the approval of their heroes and be admitted into their realm. We aspired to be like them; we worked hard, studied hard and played hard, because that is what accountants did in those days behind the boring, stodgy facade. The seniors and partners at Pannell Fitzpatrick, (the largest accounting firm in Guyana at the time and grandfather of the current TSD Lal & Co) along with Willie Stoll, Victor Gangadin, Yesu Persaud, Alan Luck, John Barcellos, Ossie Baptiste and Sugrim Mohan, the pre-eminent accountants of the era, were men of mystery who every young accountant knew were the big men on campus and hoped someday to be like.Sadly today not too many in the profession possess that aura.

Those days have long gone, but still it was jarringly noticeable that in his speech calling for an assault on corruption the outgoing chairman of the Private Sector Commission (PSC) Mr Ramesh Dookhoo mentioned the accounting profession not once but twice. This reference could be interpreted in two ways: either the gentleman feels that the accounting profession has a role to play in attempting to curtail corruption or cynically, that it is already playing a role, but as an accessory. It was not an inopportune time, coming in the midst of a furore in which the highest ranking accountant in the country is embroiled in a controversy in which anyone, save those directly involved and those in the Guyana Government, can see an obvious and blatant conflict of interest. Such is the egregious nature of the situation that it moved no less a person than the Vice-President of the domestic accounting regulator, the Institute of Chartered Accountants, Mr Chandradat Chintamani – no stranger to conflicts of interest himself – to pronounce “…my position is that it is deemed as a conflict of interest.”

Mr Dookhoo of course speaks with some knowledge and experience of the shenanigans of the accounting profession and their sometimes inappropriate liaison with corporate management. He would know of instances in which management has been less than cooperative with the internal auditors – the frontline warriors against poor accounting and controls and the kinds of internal dealings engaged in by management. As a long-standing director of the Private Sector Commission he would have been privy to both anecdotal and empirical information and indicia on corruption and tax evasion. The PSC has often made noises about tax reform, even though when it comes to walking the talk it has failed spectacularly. So I have some empathy with the negative views of the profession expressed by Mr Dookhoo, even though I do not think it was a collective mea culpa.

Where I differ from Mr Dookhoo – and without holding any brief for the local profession which deserves even stronger criticisms than it currently receives – is that he fails to see or acknowledge the unholy alliance between corporate Guyana and their auditors, not unlike the complaint against the police or customs officer who is castigated and sometimes prosecuted for receiving a bribe while the perpetrator goes unpunished.

Mr Dookhoo will be familiar with the improper transactions in which many company directors engage with their companies; unrecorded sales and related parties transactions; under-the-table payments by them, the source of which is never pursued and their destination never accounted for; and the tax free payments made to staff as “non-taxable” allowances to facilitate a reasonable take-home pay. As an accountant I can say that the avenues of tax evasion are varied and many, but like the rest of the private sector, the Private Sector Commission has never ventured to categorise tax evasion as corruption; rather it is euphemistically called tax minimization. Nor did Mr Dookhoo unambiguously question the role in all of this played by significant segments of corporate Guyana which are then prepared to reward their accountants commensurately. He was lucky that the President was in a charitable mood and did not respond to his call for him to address corruption at high government levels by pointing out that the public sector does not have a monopoly on corruption and that the private sector plays a not insignificant role in the scheme of things.

If the Private Sector Commission wants to achieve more than mere positioning itself on the right side of the corruption debate, then its officers must do more than just make farewell speeches. Mr Dookhoo’s statement about the profession would have had even more credence and weight if he had called on the President to ensure that the Public Procurement Commission is established without delay, associated the PSC with Transparency Institute’s call for anti-corruption legislation; pledged its support for the national efforts to stamp out tax evasion; and had reminded the President that the Tax Review Committee needs to be reconceived to replace the one that was stillborn. Hopefully his successor would take a stronger stand in the national interest.

Noble profession?
Members of the profession should not be surprised if the latter of the two interpretations of the remarks by Mr Dookhoo is embraced by anyone. In fact the statement offers an opening and a challenge to those still committed to practise professional values while offering leadership to those aspiring young accountants who have hitherto seen accounting as a noble profession. Why should they and the rest of society not be cynical about the declarations concerning integrity, high ethical standards and professionalism, when they see them being trampled upon and violated by members of the profession? The question we must answer is how did the profession arrive at this place where worldwide it is on the verge of becoming synonymous with greed and financial scandal?

Sounding the alarm
As far back as 1985, long before the much publicized demise of Arthur Andersen resulting from the Enron scandal, the American Institute of Certified Public Accountants was beginning to press the panic button. A report by its Special Committee on Standards of Professional Conduct had this depressing but prescient observation:

“There has been an erosion of self-restraint, conservatism, and adherence to basic professional values at a pace and to an extent that is unprecedented in [the] profession’s history… we believe the profession is on the brink of a crisis of confidence in its ability to serve the public interest” (Special Committee 1985 3-4).

The most damning portion of this statement is the last, that warns of a crisis of confidence in the ability of the profession to serve the public interest. The warning was vindicated with the spate of accounting scandals bearing the name Enron. Users of financial statements over time have relied on accountants to use their professional, training, skill and judgment to give objective assessments of financial information. The profession – until the relatively recent past and the repeated black eyes it has received as a consequence of aggressive practices, greed, and disregard for ethical standards – has been by and large self-regulating in many countries, and this is still the case in Guyana.

The view of the professions, and accounting was no different, was that their members possessed the requisite skill and would exercise due care in the execution of their duties. They were perceived as being special and therefore they were allowed to set their standards, establish their own rules and were given the authority to discipline their members. This works well if their membership maintains those standards which over time establish and reinforce the credibility and integrity with which to serve the public interest.

Without this a profession is of no consequence and many countries recognizing the failings of the accounting profession have increasingly introduced regulations to compensate for its shortcomings. It is time that the fig leaf of self-regulation be revisited in Guyana – but then what do we do about the incompetent, incapacitated Audit Office? We are in a real dilemma.

Impeccable record?
The Institute of Chartered Accountants of Guyana (ICAG) has been noticeably absent from the public discourse on any issue, even if it has direct implications for its members or relates to matters on which it has a responsibility to educate the public. In Guyana, the impeccable record of the profession has never, as far as this writer can recall, been tarnished by any disciplinary action against any of its members; an amazing accomplishment perhaps worthy of recognition by the good folk at the Guinness Book of Records. Based on recent events, however, it appears that there is a blot on that record on the horizon because surely the Institute of Chartered Accountants of Guyana must now deal with the twin issue of the Minister of Finance and his wife who are both professionally qualified accountants and subject to the strictures of the local body. It is hoped that the usually indolent body will now move expeditiously in a manner that restores Mr Dookhoo and the public’s faith in the ability of the accounting profession to regulate its members.

Hard choices
There has been enough adverse publicity for the profession almost on a daily basis, so there is no point dwelling on the litany of scandals with which it has been confronted worldwide. The focus should be on whether the members of the profession are prepared to engage in the introspection necessary to redeem their reputation. The deafening silence in the face of both public and private sector abuses must no longer be the cloak behind which the protection of fees takes precedence over the discharge of statutory and professional obligations. While the profession throughout the world has issues, my concern is with what is happening in Guyana, and the worn out cliché that there are problems everywhere does not cut it. The ICAG has a duty to take principled positions when necessary even if they are unpopular and have a financial cost, because it is the only way to carry out its mandate of serving the public interest. It also must not shy away from exercising its authority to institute disciplinary measures against any of its members, high or low, whenever necessary if it wants to restore its credibility in the eyes of the public.

Accountants who want to be respected as professionals must walk the walk or they do grave disservice to the profession, the public and all those many young people who are just getting into or are thinking of embarking on careers as accountants.

The almighty dollar must not be the shrine at which pseudo professionals are prepared to sacrifice their principles and ethics.

Perhaps there is a message in Mr Dookhoo’s statement perhaps not; only he knows that. What everyone does know is that the reputation of the accounting profession, though not quite in tatters, is not a long way away from achieving that status. It may be that an unintended consequence of the fallout from this latest exhibition of arrogance on display from the Finance Minister and his colleagues is the long awaited awakening of the ICAG from its long, deep slumber. Its Vice-President has left the door ajar; maybe other members will have the courage to kick it open. One can only hope.

On a final note, Mr Dookhoo also appended the legal profession to his charge. It is not certain whether that profession is any better than the accountants. But since it is known for its prolixity, the legal profession might wish to say something to help restore its own image and the reputation of its practitioners.

Guyana hosts regional accounting conference

Guyanese accountants are this weekend hosting their counterparts from the region in the annual conference of the Institute of Chartered Accountants of the Caribbean (ICAC). This is the region’s umbrella body bringing together accountants of the English-speaking Caribbean. According to the ICAC website its membership is currently made up of seven members and four affiliates. The members are the national institutes of the territories of the region each of which operates under domestic statute.

The conference comes at another of those times when circumstances force the profession and/or the state to confront issues affecting the public interest. Sometimes the profession is affected indirectly rather than directly. One such example was in 1862 when the UK Parliament quickly reversed the 1856 Companies Act which had all but abandoned the mandatory accounting and auditing requirements of the 1844 Companies Act, encouraging a form of laissez-faire accountability. But the most dramatic and direct example of reform within recent memory was the Enron debacle which was quickly followed by a series of corporate failures forcing the US to pass the Sarbanes-Oxley Act in 2002. Failure was not restricted to the companies involved, but affected one of the pillars of the auditing profession – the prestigious Arthur Andersen which gave up its licences after being found guilty of criminal charges relating to the firm’s handling of the audit of Enron. The firm won something of a Pyrrhic victory when the Supreme Court of the United States overturned the verdict, but by then the firm’s demise had been sealed.

Blurring profit and professionalism
Only a few years preceding the Enron failure, Arthur Levitt, Chairman of the Securities and Exchange Commission of the US had said of the profession: “The audit profession has a long and distinguished history of guarding the integrity of our companies’ financial statements. They must live up to their history… I fear that the audit process, long rooted in independence and professionalism, may be diminished in the name of these increasingly lucrative and commercial opportunities.”

In other words accounting and auditing had become a business and the profession was in danger of individual accountants and firms putting profit and personal interest before the profession. The challenge for the society and the profession is how to balance the pursuit for profits with the objectives of the profession to set and maintain the highest standards of professionalism, to attain the highest levels of performance and generally to ensure that the public is convinced that the hallmark of the profession – independence and integrity – remains intact.

A market economy requires that there be credibility in information and information systems that are fed to shareholders and the public. And that persons who are certified by the accounting bodies to offer professional accounting and auditing services possess the highest standards of technical competence, experience and expertise and performance. Such issues must be ever present in the minds of those with responsibility for the proper functioning of our society.

Top of the chain
The region’s laws give to the accounting profession major and valuable roles to perform in the proper functioning of the economies of the countries. In Guyana these include the Companies Act, which assigns to the accounting profession the power to set and oversee the application of accounting standards and invests it with the sole authority to carry out the audits of locally incorporated or external companies registered to carry on business in Guyana. The Corporation Tax Act requires all companies to support their tax returns with financial statements audited by members of the Institute of Chartered Accountants of Guyana. The Securities Industry Act and the Financial Institutions Act all assign or delegate to the profession specific roles with regard to compliance with internal controls.

Under the principles of corporate governance the accounting profession in the role of internal auditors is regarded as one of the pillars of sound corporate governance, and in many jurisdictions the Audit Committee is one of the standing committees of the board with defined powers, rights, obligations and reporting responsibilities.

Increasingly too, accountants because of their facility with figures have risen up the corporate ladder and many of the region’s CEOs are either accountants or are MBAs majoring in finance or accounting. By law they sit at the top of the accounting pyramid. In practice they can be both the players and scorers adding to the challenge of meaningful regulation. Those are immense privileges that are sadly not always matched by commensurate responsibilities.

Making accountants more accountable
Enron and its ‘side-kicks,’ Tyco International, Adelphia, Peregrine Systems and WorldCom may have been perceived by the regional profession as a US problem, and it seems that the region saw itself as a witness to a fascinating spectacle, but no more. Now, faced with Stanford and Clico is the profession in the region right to ignore the possibility that these major disasters which continue to have ripple-down effects on households are as much governance and regulatory failures as they are accounting failures? Hopefully the accountants meeting at the Conference Centre would find time to address this critical issue.

The US tried its best in the face of resistance from the profession to make the profession more accountable, and following the Sarbanes-Oxley Act, self-regulated peer reviews at accounting firms were replaced by independent inspections conducted by the Public Company Accounting and Oversight Board. But that applies only to the US.

Here in the Caribbean, characterised by the smallness of our economies and countries and the nature and size of business units, it is no surprise that the accounting profession is dominated by sole practitioners or partnerships of no more than a handful of persons. There is limited scope for second reviews, peer reviews and quality control or in-house capability to deal with complex technical or ethical issues. And with only four major accounting firms in the world – down from eight a couple of decades ago – real choice even for the big companies is seriously limited for purchasers of audit services. Yet self-regulation is regarded as sacrosanct.

All national legislation provides for a self-regulated profession in which the accountants make or adopt their own technical, professional and ethical rules and oversee and discipline – or fail to discipline – individual members and firms where their conduct has brought the accounting profession into disrepute. It is perhaps no surprise then that one of the objectives of the ICAC is the preservation of the self-regulatory nature of the profession. The profession forgets at its peril that in many cases the failures surface soon after the auditors for those companies have given them a clean bill of health.

It would seem that the Caribbean Institute has abandoned one of its founding objectives, and that is the creation of a standard regional accounting examination, administered initially by one of the international accounting bodies. At the time that decision was taken there was considerably greater disparity in corporate and tax legislation and relevant textbooks were unavailable. Such restrictions have been reduced.

There has been much by way of reform if not harmonization in corporate law and our countries, with the exception of The Bahamas are all signatories to what is popularly referred to as the Caricom Double Taxation Treaty. There is now an excellent text by Dr Claude Denbow on taxation in the Commonwealth, and the region’s law schools have a considerable amount of material on corporate law.

As new legislation is enacted in the region to give effect to the Revised Treaty of Chaguaramas, as the profession is held to be part of the fight against money-laundering, and as our professionals if not our artisans move freely around the Caribbean, the dream of a Caribbean professional accounting qualification that begins with a degree programme from our regional universities should be revived.

The region’s lawyers and doctors have done it. There seems no reason for accountants to hold on to the coat-tails of international accounting bodies principally from the UK to shape our accounting education in the second decade of the 21st century.

Ethics and insurance
Accountants have a duty not only to act ethically, but also competently. Shareholders, investors, tax authorities and other users of the financial statements rely heavily on the yearly financial statements of a company, as they can use this information to make informed decisions about investment and taxation – two issues of major public importance.

The journals of the major accounting bodies reflect an alarming increase in the number of complaints lodged against accountants and auditors. That must be a fraction of the actual incidence of this phenomenon. The public is largely unaware of the finer points of professional ethics, and accountants are loathe to report on their colleagues since they may be as equally culpable. And even if a complaint is lodged, the rules for addressing it are too often unclear and allow for such complaint to be heard only by accountants.

The danger is that self-investigation can become self-protection.
Finally our accountants ought to place on their agenda another problem facing the public in the region, and that is that the bulk of the professional accounting practitioners have no professional indemnity insurance. The regional or national bodies do not require it and the insurance industry is hesitant to offer it. So the client who receives sub-standard advice or shoddy work from his accountant is often left with practically no recourse but to end the relationship. That is no remedy.

Hopefully even as the Caribbean accountants enjoy Guyana’s hospitality and grapple with arcane concepts of IFRSs, the financial crisis and modernising corporate legislation, they will reflect on their overriding duty to the public and the need to restore public confidence in the profession.

Weaknesses in the self-regulation of the accounting industry have been demonstrated

The acceptance by Mr Chandradat Chintamani, FCCA of a place on the board of Demerara Distillers Limited on the last day of 2008 has highlighted the role of individual accountants and the regulator in ensuring that ethical standards in the accounting profession are maintained.

Mr Chintamani is a member of the Council of the Institute of Chartered Accountants of Guyana (ICAG) and the Secretary and point man of its Investigations Committee. That committee took close to five years (April 22, 2004 to December 30, 2008) to adjudicate on a professional complaint against two senior directors of DDL and the company’s auditors over a loan-buy back from troubled Hamilton Bank. The evidence is that the company gained from the transaction US$1.1M or more than G$200M at the then exchange rate of the US to the Guyana dollar. The gist of the complaint was that DDL had failed to account for the gain in its financial statements on which the auditors gave a clean opinion.

As the complainant I provided Mr Chintamani directly with particulars of the buy-back which were not reflected in the company’s financial statements.

What increased the concern over the transaction were the conflicting statements made by two senior officials of the company and their inconsistency with the information provided to Mr Chintamani.

In a letter dated December 1, 2003 the company’s Chairman had stated that “the loan was treated as a creditor and included in current liabilities since it is a line of credit.” For good measure the Chairman added that the net effect of the settlement resulted in no gain or loss to the company.

Two weeks later on December 14, 2003 a different story emerged from an article in the Stabroek News in which then Finance Controller and now General Manager of the company Mr Loris Nathoo reported that “since the transaction happened within the financial year and the loans were short-term the company did not see it necessary to report the matter in its statement” (sic). He was also reported as saying that the 25% discount of US$1.1M reflected “interest and other charges.”

After some considerable silence on the part of the Investigations Committee I received a letter dated December 30, 2008 advising me that “based on documentation examined, the Council [of the ICAG] is convinced that the settlement of the loan with Hamilton Bank Limited was properly accounted for in the financial statements of DDL for the year ended December 31, 2002.” I was therefore confronted with a number of questions:

If according to the company’s Chairman the loan was treated as a creditor (as opposed to loans payable or separate treatment as it is an interest bearing liability) how could the Investigations Committee find that it was properly accounted for?

If the later statement by the Finance Controller is correct and there was no need to report the matter in its financial statements were the Finance Controller and the ICAG referring to two different sets of statements?

Assuming that the ICAG is correct, why did interest payable only increase by $72M from 2002 to 2003 if in fact a gain was set against interest payable in 2002?

Should there not have been a disclosure of a loan transaction involving US$4.673M including the credit being specifically disclosed in note 4 to the financial statements?

Since under the ICAG’s bye-laws the Institute can initiate an investigation without a complaint, what is the burden and standard of proof applied by the Investigations Committee and its own obligations to pursue evidence in relation to any enquiry it carries out?

To resolve these questions I wrote the Secretary of the ICAG on January 19, 2009 asking for a copy of the report done by the Investigations Committee. I have not had a response to my request but learnt unofficially that the report may have been oral which raises some serious questions indeed.

The role of the ICAG as regulator is not only to advance the interest of its members generally but also to ensure the maintenance of high standards of practice and professional conduct by all its members. Vernon Soare, ICAEW Executive Director of Professional Standards on the occasion of the decision of that body to open up its tribunals to the press and the public in 2007 put it this way: “A modern professional body must demonstrate that its processes are objective and in the public interest.”

The conduct of the Investigations Committee and the ICAG in the matter of the complaint against DDL and its auditors clearly did not meet that test but rather demonstrated the serious weaknesses in self-regulation and the failure of the accounting profession in its duty to the public. The reputation of the country is no less determined by the conduct of its politicians than by the integrity of the accounting profession.

From the sequence of events Mr Chintamani must have been engaged in discussions about a seat on DDL’s board even while he bore a duty to participate in an independent investigation into a complaint against leading members of that Board. At a minimum, Mr Chintamani should have disclosed to the Council of the ICAG his impending appointment and the Board of DDL ought to have considered the ethical issue involved in offering a place to Mr Chintamani. The approach to him was improper and distasteful and does a disservice to the entire Board of DDL but in the final analysis it was Mr Chintamani’s duty to refuse. His failure to do so, undermined the investigation and discredits the profession.

Mr Chintamani needs to reconsider his decision and lapse of judgment and do what is necessary to restore some measure of confidence in the profession. The Council of the ICAG must also consider whether in the light of these developments the findings of the Investigations Committee can and should stand. A profession that many see, perhaps unfairly, as part of the tax evasion industry cannot afford to feed any negative perceptions about its leading members and itself.