Australia: Smaller firms slam accounting regime as ‘useless’
Nov 6, 2023
Smaller accounting firms say the current regulatory regime is useless and riven by conflicts of interest between the major professional bodies and the larger firms.
The larger firms counter the system is working well, revealing a split as parliament considers an overhaul of the overlapping system of government and self-regulation following the PwC tax leaks scandal.
But Top 100 Accounting Firms’ leaders were united on one matter: the growing amount of regulation and red tape imposed by government bodies is needlessly increasing costs and hitting their productivity, they say.
Leaders were asked about what changes, if any, should be made to the rules governing accounting firms, as part of the annual Top 100 survey. The PwC tax leaks scandal has triggered two federal inquiries and Treasury reviews examining different aspects of how firms and the profession are regulated.
“To put it lightly, the current regulatory regime for accounting firms is useless,” said Sheridan Green, one of two partners at tax advisory firm Sovereign Private.
“There are severe conflicts between the [CA ANZ and] The Tax Institute, and their involvement with the larger firms. As a small practice, we have felt alone and abandoned by our governing bodies.
“There is little or no support for small practice and the way the [CA ANZ] treats smaller firms is terrible. Our preference would be for the establishment of a new [professional] body that represents traditional accounting firms outside of the big four and consulting.”
Self-regulation has failed
Aaron Fitchett, a tax partner at six-partner firm Baumgartners, also felt self-regulation by the professional bodies had failed.
“Government regulation could be stronger as there are many substandard accountants and tax agents we encounter on a regular basis as we pick up new clients,” Mr Fitchett said.
“Self-regulation has proven to be a failed endeavour due to conflicts of interest between the regulatory bodies and the large accounting firms.”
Regulators and the professional bodies need to “get serious about bringing dishonest and unethical practitioners to heel,” said Kristian Lunardello, the managing director of nine-partner firm hmh Advisory.
“They all seem to think it’s someone else’s responsibility,” Mr Lunardello said.
“CA ANZ and CPA must act to cancel practising certificates and withdraw memberships from dishonest and unethical practitioners. ASIC should also take action against practitioner directors of firm entities who act dishonestly.”
Too many regulators
KPMG Australia chief executive Andrew Yates said the firm was open to ASIC having “an extended regulatory role over our profession”, while Deloitte Australia boss Adam Powick noted the firm would participate in the various inquiries and reviews “openly and transparently”.
PwC Australia and EY Oceania declined to comment. The big four have upwards of 700 partners each.
Sripathy Sarma, a principal at seven-partner firm LBW Business and Wealth Advisors said “it [would] be good to have one regulator”.
Gavin Johns, the chairman of 47-partner firm DFK ANZ, said there were “too many levels of regulation”.
“Ideally, there would be fewer levels providing strong and effective regulation,” Mr Johns said.
The current regulation system for accounting firms is enforced by a mix of overlapping government bodies – such as the Australian Securities and Investments Commission and the Tax Practitioners Board – and self-regulation via professional bodies like the Chartered Accountants ANZ, CPA Australia and the Institute of Public Accountants.
During the Senate inquiry into consultants, EY Oceania boss David Larocca said the firm is overseen by “33 federal state, territory and international regulators”, “19 organisations inspect our firm” and that its personnel have to adhere to, variously, standards from at least 30 licences or memberships.
Consultants, who bring in a growing proportion of income at the big four firms and other accounting outfits, are not specifically regulated by any government bodies.
Merge accounting bodies
Other firm leaders called for the three major accounting professional bodies to be merged into a single entity with consistent standards. Leaders at smaller firms also echoed Ms Green’s view that CA ANZ did not cater to their specific needs.
“We need ONE BODY overseeing accountants across Australia – that’s it!” said Timothy Munro, the founder and CEO of two partner-firm Change Accountants & Advisors.
“Too much self-preservation exists and the accounting professional bodies are only interested in [continuing professional development] revenue and growing their membership so their executive teams can demand higher and higher bonuses.”
David Shaw, the CEO and founder of eight-partner firm WSC Group, said self-regulation was working but would be more effective if CA ANZ, CPA and the IPA merged into a single body.
Mr Shaw said this would result in “a stronger voice” for the sector when dealing with regulators.
Stefan Lipkiewicz, the managing director of 11-partner firm Caveo Partners, said amalgamation “into one professional association” would reduce confusion in the sector over standards that are “too focused on accounting when the major growth area is multidisciplinary advice”.
Current system working
Another group of leaders said the current mix of overlapping regulators and professional bodies had served the sector well.
Greg Keith, the CEO of 176-partner firm Grant Thornton, said “government regulators and self-regulation by the professional bodies complement each other, reaching into different levels within firms and applying oversight across the full body of work”.
Mark McLean, the managing partner of Ulton, which has nine partners, said increasing regulation wouldn’t solve “the issue of the rare rogue party”.
Simon Byers, a senior partner at Highview Accounting & Financial, said the current regulatory “mix is right” and that most “accountants do the right thing, particularly in small- to medium-sized firms”.
Instead, he said that problems tended to emerge when firms became too big and focused on profit to the point “they lose touch with the importance of independence and integrity”. Highview has 13 partners.
Roy Sanderson, of 12-partner firm RJ Sanderson & Associates, said the “isolated incident” with PwC should not cause the government to change what he felt was the existing, and effective, system of self-regulation.
Tony Fittler, the chairman of the local branch of HLB Mann Judd, said the system “has worked well” but that “increasingly frequent changes” to regulation had become more challenging. “We don’t want to cultivate a regulatory environment that discourages qualified and experienced professionals from a fulfilling career,” he said. HLB has 82 partners.
Too much regulation
Many leaders agreed with Mr Fittler that regulation is becoming more onerous.
David Tomasi, the chairman of the 70-partner firm Moore Australia, said “increasing regulations and compliance requirements have made it difficult for professionals and costs have increased”.
“This is driving many advisors away from our profession, therefore limiting the pool of skill/talent and capability,” Mr Tomasi said.
Lorin Joyce, chairman of MGI Australasia, and Jarrod Bramble. managing partner of Cutcher & Neale, also said the level of regulation meant compliance work was “becoming more time-consuming, diverting valuable resources from strategic initiatives and client-centric services”. MGI has 31 partners, while Cutcher & Neale has 12 partners.
George Shahinian, the managing partner of seven-partner firm Economos, said regulations were “far too complicated, they cross over multiple legislations, jurisdictions and [were] very difficult for professionals to keep up with”.
[Financial Review]
