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Accountants reject a regime of rules

AUSTRALIAN accounting bodies have lauded the rapid passage of the Sabranes-Oxley Bill through the US legislature but warn that stricter legislation may not be the only answer to corporate governance issues.

The bill, if passed by the US House of Representatives, will end self-regulation of the accounting industry and create an umbrella board to oversee the setting and monitoring of standards.

The board will have the power to discipline accountants who fail to uphold professional standards.

Australia’s answer to the audit in-dependence and accounting standards issue will be in chapter nine of the Corporate Law Economic Reform Program, which is due for release at the end of this month. However, there may be some extra recommendations added to CLERP9 when the HIH Royal Commission concludes.

Part of that commission’s brief was to consider audit independence and accounting standards issues.

CPA Australia called for an oversight framework that would work more broadly than the one suggested for the US, in its The Financial Framework – The Way Forward paper released in April.

CPA Australia CEO Greg Larsen said the US was relying upon black-letter law as opposed to the clear unequivocal principles that under-pinned Australia’s approach.

“Like the US we see a strong need for more direct representation of public interest within the financial reporting framework, but this must be balanced with ensuring an oversight body has access to appropriate technical advice,” he said.

“Public confidence relies upon all participants who make decisions impacting on thousands of share-holders, including accountants, company directors, auditors, their professional associations and the bodies that regulate and police this process.”

Institute of Chartered Accountants CEO Stephen Harrison said the proposed US changes were similar to what the Australian accounting industry had been championing.

“However, we do caution against following the US approach to implementing principles through black-letter law. The prime minister’s support for minimal rule-based reform is to be applauded,” he said.

“It must be recognised that US best practice does not necessarily represent international best practice, despite the size of their capital market.”

Association of Chartered Certified Accountants Australia & New Zealand centre head Richard Francis said the trouble with rules-based solutions was that people would find ways around them.

“The US system is heavily rules-based and that just encourages people to work around those rules,” he said.

“The European style of accounting values substance over form.

“The answer to Australia’s auditing problems may require more regulation and a broader role for the Australian Securities and Investments Com-mission, but the problem is not going to be solved by rules alone.”

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