The UK Accounting Watchdog
Last month the UK accounting watchdog ordered the biggest accounting firms and professional accounting associations to outline how they will stop staff and members from cheating on professional exams.
The UK accounting watchdog is the Financial Reporting Council (FRC). They were set up to regulate the accounting sector and open probes when malpractice is suspected. The accounting firms that they’re focusing on are the big four and a few of the next largest companies including: Ernst & Young (EY), Deloitte, PricewaterhouseCoopers (PwC), Klynveld Peat Marwick Goerdeler (KPMG), BDO, Mazars and Grant Thornton. The professional associations are the usual suspects including: the Association of Certified Chartered Accountants (ACCA), the Institute of Chartered Accountants in England and Wales (ICAEW), the Chartered Institute of Management Accountants (CIMA) and the Association of Accounting Technicians (AAT).
Which Exams are we Referring to?
Accounting exams are taken by accounting professionals who wish to pursue a professional qualification. The professional associations mentioned above all offer qualifications that are designed to help candidates improve their career prospects. Many accounting professionals will begin their careers by working in industry for one of the big four. Often, these companies will sponsor staff members so that they can gain a professional qualification. Accounting firms and professional associations are intrinsically linked because they’re both trying to help candidates achieve the same thing.
What’s the Low-Down?
But why is the UK accounting watchdog so concerned with the integrity of these exams now?
Simply put, because of a series of allegations and scandals in the US, Canada and Australia. These scandals led to massive fines for EY, PwC and KPMG. The biggest of these fines (£100m) was dished out to EY by the US Securities and Exchange Commission (SEC). But what had they done? They simply failed to disclose cheating. This isn’t the first time that this has happened either. KPMG received a hefty fine for the same reason in 2019.
In a letter seen by the Financial Times to the FRC from Executive Director for Supervision, Sarah Rapson said:
“The FRC is deeply concerned about these events and the potential impact on UK audits if such an issue was identified in the UK.”
To be clear, no such cheating has been identified in the UK at present. However, what’s happening in the US, Canada and Australia is clearly a cautionary tale for Rapson and the FRC.
That this was happening in the biggest global accounting firms is unsettling because they are entrusted with the responsibility of progressing thousands of young accountants in their careers every year. In the scandal in Australia in 2021, nearly 1,200 candidates were found to be cheating in just one exam! Professional qualifications are supposed to be the marker of one’s, dare I say it, professionalism. And of course, capability.
What Does the Future Hold?
First of all, the discussions about cheating have been going on since 2021 in the UK, but the watchdog’s decision to make this public news in July is an attempt to speed things up. We are yet to hear from the firms and professional associations involved. They are most likely reviewing their cheating procedures and policies as we speak.
As always, when regulators step in, we hear complaints of red tape being administered. These cries are nothing new in 2022; in April it was announced that the FRC would be reclaiming powers to ban auditors after the corporate collapses of Carillon, British Home Stores and Patisserie Valerie. You” be aware that the Carillon audit has been huge news for years. To recap briefly: KPMG signed off on their accounts in 2017 and then Carillon went out of business just 5 months later. This led to KPMG being sued by a government agency for £250m for failing to detect the incorrect valuation of the business. More recently, KPMG are being sued for over £1.3bn! These new powers for the FRC are set to be rolled out in September.
After this scandal, as well as the questionable integrity of auditors in the English-speaking world, it is clear to see why the FRC is clamping down.
For clients of the big four, knowing that cheating is being stamped out will only serve to benefit them as they will feel more confident in the abilities of their auditors. For young accountants, this will strengthen the integrity of professional qualifications which wil.l bolster their career prospects further.
Level the Playing Field
Accounting exams are the ultimate leveller when it comes to career prospects. They are designed to exist in a meritocratic system where the people who work hard to pass them are duly rewarded. If the biggest accounting firms in the world are facilitating cheating, the playing field becomes uneven once more. Therefore, while some people prefer a laissez-faire approach from regulators, it is vitally important that the FRC make sure that they punish cheating so that no matter where you work when you complete your exams, you are held to the same standards and you are rewarded equally.
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