Global Benefits Vs. Individual Interest: Why Changing the Status Quo Can Be a Challenge
By Richard Rees, FCA
Two significant and difficult issues have dominated my agenda in 2011: the HST referendum and the "Uniting the Profession" initiative. Over the summer, I found myself reflecting on these two issues, and also contemplating what the remainder of 2011 has in store for us. I'd like to share some of my thoughts with you.
First, I'll share my thoughts on the HST. We now know that just over 50% of eligible voters in BC filled out and returned their HST referendum ballot. We also know that 55% of those individuals voted to rescind the HST and reinstate the PST/GST system. The provincial government has indicated that it will strive to change the tax system back within the next 18 months, restoring all of the exemptions that previously existed.
Through our membership in the Smart Tax Alliance (STA), the ICABC mounted a great campaign to get the facts out, and I'm proud of what we were able to accomplish in a very short period of time. These strides were evidenced
Many CAs responded to the Institute's requests for assistance and participated directly in the STA's campaign. Some of you acted as spokespeople, appearing in radio and TV ads, responding to media requests, and speaking at provincial referendum events and BC Chamber of Commerce informational events. Many more of you actively advocated for the HST by providing information to friends, family, and colleagues. I would like to thank each of you for your participation—the role that our profession played in the campaign was incredibly important.
Looking back, it was an exasperating process to be involved with. The quality of the media commentary was often poor, focusing on the politics rather than the policy. In addition, the global benefits of the HST (such as creating a stronger, more competitive economy and more jobs) did not directly impact individuals, whereas the negatives (such as paying more for certain items like haircuts and a morning coffee) did—and on an almost daily basis. Bottom line: It was difficult for people to connect to the global benefits in a personal way, while the negatives were readily apparent.
The government has indicated that it's open to making administrative changes to the reinstated PST/GST system, and the Institute will be providing recommendations to streamline it. Let us hope that somehow out of all of this, we end up with an efficient and competitive commodity tax system in BC.
Uniting the profession
We've certainly seen parallels between the HST information campaign and the other big agenda item, the Uniting the Profession initiative. Once again, we faced a communications challenge, and had only a short period of time in which to get information about a complex and dynamic situation out to the membership and solicit feedback.
During this consultative process, we were pleased to see many members attend our town hall presentations to learn more about the initiative; however, attendance levels still only reflected 7% of the total number of BC's CA membership. We also know that most members did not download the position paper in which the CICA explains why the two accounting bodies are even considering this initiative.
Unfortunately, in the absence of good information, misinformation can fill the void. As with the HST issue, we saw some instances where emotions trumped facts. That said, we know that many members fully appreciate what is happening and understand exactly what is at stake.
At the time of this writing, the CA and CMA bodies have not agreed to a proposal. However, given the results of the national consultation on the Uniting the Profession position paper, I expect that we will begin to work on a proposal this fall. The next stage would be to seek endorsement from the national and provincial bodies, and then a final proposal could emerge and come to the membership for approval.
So why are we looking at uniting the profession now? Let's start this discussion by reviewing our history.
The accounting profession exists because of visionary pioneers who petitioned governments to establish provincial institutes and give them the right to grant designations.
Once given this mandate, our profession developed a rigorous educational program and robust standards of practice and self-regulation. Government retained some degree of oversight, and still has the ability to change our legislative mandate; overall, however, we have done a good job looking after the public interest and the government has substantially left us alone.
That was then. This is now. Recent events in the financial and investment sectors have the potential to change our industry profoundly, by irrevocably altering the expectations for the oversight of financial reporting.
At the end of July 2011, the National Association of State Boards of Accountancy (NASBA) held an international forum for accounting regulators in Vancouver. One of the speakers was Richard Fleck, chair of the United Kingdom's Financial Reporting Council, which oversees the UK's accounting profession on behalf of government. Fleck noted that the profession's role has never been as important as it is today, nor its value as great. Accurate, reliable financial information is a product that our economy needs now more than ever, he said.
However, the recent financial crisis called into question the role that auditors play in our financial system. Fleck acknowledged that the auditors of the failed or bailed out banks and investment houses had complied with standards, but noted that the extensive problems in the financial system had led many politicians and regulators to become concerned about the oversight role played by the accounting profession.
While Canadian banks fared well during this crisis when compared to their international peers, any regulatory changes that happen beyond our border will certainly affect how we do business in the future. In fact, Canada has already seen the ripple effect of systemic changes made in other jurisdictions. In the aftermath of Enron, we saw the emergence of the Public Company Accounting Oversight Board (PCAOB) under the Sarbanes-Oxley Act, and watched as the US went from having a peer review inspection system to a full-blown independent audit review agency. In order to demonstrate that Canada's financial regulatory system was as robust as that of our major trading partner, the CA profession led the initiative to establish the Canadian Public Accountability Board (CPAB).
What has transpired over the last three years is no less serious and will certainly lead to significant regulatory changes. Accounting standards and the profession are recurring items on the G8 and G20 agendas, and some potentially radical proposals are expected from the European Commission and the PCAOB later this year.
Given the political pressure our national and provincial governments may face in meeting new regulatory standards, we have to consider how the Canadian accounting landscape looks to government bodies at the moment. "Fragmented" is likely the answer, as there are currently 40 accounting bodies in jurisdictions across Canada, each established by its own legislation.
In addition, no two pieces of legislation are the same. For example, when comparing BC and Alberta, BC's Accountants (Chartered) Act is 15 pages long and provides the legislative mandate for chartered accountants, while Alberta's Regulated Accounting Profession Act is 117 pages long and provides legislative oversight for all three accounting designations.
Furthermore, there is no agreement on national qualification standards for those licensed to practice public accounting, and we now have accounting bodies using the dispute mechanisms under the Agreement for Internal Trade to settle inter-provincial mobility and market access issues. Mediating these disputes comes at an excessive cost to government, with little to no return on investment. Consider this fact in the context of our modest economic growth prospects and government budgetary challenges, and ask yourself if this is sustainable. Personally, I have my doubts.
Bottom line: Our profession is on the government's radar screen and not necessarily in a good way. Moreover, change is already afoot. Consider that:
Now having said all of that, where there are challenges there are also opportunities, and I believe that the Canadian accounting profession has been a good servant to Canada and to the public interest. But we are at a crossroads, and we must show the same vision as the founders of our profession and evolve in a way that continues to contribute to the country. We must take the initiative and ensure that our values and our CA legacy carry forward. The alternative is to sit back and allow our profession's fate to be determined by others.
As we move to the next phase of the Uniting the Profession initiative, I'm optimistic. The framework of principles included in the CICA's position paper fared well in the consultation phase, and will serve the memberships of both designations as a proposal is developed. For its part, the BC Institute will continue to contribute to, and influence the ensuing national discussion.
Over the coming months, we will also be keeping an eye on developments elsewhere, particularly in Quebec. If Quebec achieves a three-way merger, 20% of the accounting professionals in Canada will become chartered professional accountants (CPAs) sometime in 2012. Developments in the US and Europe also need to be monitored.
In my mind, our goal has to be the creation of a strong and independent Canadian accounting profession; and with our existing professional framework under review, we must demonstrate to government that we deserve to maintain our current regulatory mandate. To remain fragmented at this point is to risk becoming obsolete.
Richard Rees, FCA, is the CEO of the Institute of Chartered Accountants of BC.