By Peter Wyman

As president of the Institute of Chartered Accountants in England and Wales (ICAEW) during the aftermath of Enron and WorldCom, I have thought deeply about these issues, and have debated them with many well-informed and experienced accountants, academics, businessmen, regulators, and politicians. Action was required, and has now been taken. But, as with any action, there is always the risk of unintended consequences, and many proposals that have been advocated on both sides of the Atlantic would be counterproductive. I am clear that, were the British authorities to incorporate the views expressed in The CPA Journal article into U.K. regulations, it would have a catastrophic impact on the quality of auditing in my country.

Much of the debate around the world has been about auditor independence, including the contribution from professors Mano, Mouritsen, and Swearingen. Auditor independence is important, of course, but it is not all-important. Auditor independence is but a means to an end. The United Kingdom takes this issue seriously and has stringent measures in place, based on some very well understood principles. But what really matters is the quality of the audit, which, above all else, is itself dependent on the quality of the people who conduct it.

In the United Kingdom, the ICAEW has, over many decades, been working to ensure that the highest-caliber people are attracted into the accounting profession, and that they receive the best possible training to equip them to be first-class auditors. U.K. auditing firms have been immensely successful in recruiting the best graduates from our country’s best schools. This has been possible because the chartered accountancy qualification is traditionally seen as a first-class business education, leading to many different career opportunities. The vast majority of publicly owned companies in the United Kingdom have at least one chartered accountant on the board, often as CFO, but also as chairman, CEO, or independent nonexecutive director. Many people here would take a dim view of a company where the CFO lacked a professional accountancy qualification.

It is worth remembering that most audit failures arise because of a failure by the auditor to understand the wider business dimensions, the areas of risk inherent in the business, or to see the big picture. Few if any audits fail because detailed procedures were not followed or because of a lack of independence. Thus, a broadly based business understanding is essential to good auditing. This will undoubtedly best be obtained in a multidisciplinary firm environment.

The recent years’ scandals have, of course, undermined investor confidence. Because perception matters as much as reality, restoring that confidence requires not only that the right actions be taken, but also that the right actions are seen to have been taken. An improvement in perception, however, will be no more than a short-term victory if the reality is a fall in the quality of auditing. Instead, I would suggest that most of the steps necessary to restore confidence have already been taken.

Despite the strong criticism in the United Kingdom of the extraterritorial aspects of the Sarbanes-Oxley Act, the major provisions of the act are widely seen here as being the right and proper measures. Many would consider greater transparency by companies and auditors as the final ingredient necessary to ensure confidence in the audit process.
An ever-tightening definition of the role of the auditor and the work auditing firms can provide will not achieve the goal of higher-quality audits. Indeed, it will have exactly the opposite effect, and I believe the profession should do more to disseminate this message. The debate will no doubt be vigorous, but the alternative is that we accept the erosion of the profession and of our ability to continue to attract the best and the brightest entrants. The end result would undoubtedly be poorer-quality audits and potentially more business failures.