I have been a Chartered Accountant for over 40 years;
The 1970s, when I qualified, were pretty grim politically and economically with a great deal of industrial unrest. I didn’t care. I’d spent 3 years at University, got the job I wanted, spent another 3 years training as a chartered accountant, got married, bought my first house (yes, you could do that at 22 back then) and welcomed my first child to the world. I’d also travelled to Europe, Africa and the US for my employer. The year was 1979 and I’d just become a Manager at Arthur Andersen &Co.
The accountancy profession was in reasonable shape. There were 8-10 large firms, both accounting and auditing standards were developing and as the 1980s dawned the economy began to improve and bank lending to small businesses was buoyant.
A lot has happened in the accounting profession since then – not much of it for the better.
From a regulatory viewpoint, in 1979 all limited companies had to be audited and file their accounts, in full, on the public record. The content of those accounts was very largely laid down by law. And they had to be true and fair – providing the information that a stakeholder, then more widely defined – might need to make a decision on their engagement with a company.
Now the content of the accounts of most companies that is available on the public record is negligible.The range of stakeholders for whom accounts are prepared has reduced. They are now only of use to suppliers of capital to a company and then only with regards to their decision as to whether to engage, or not. True and fair no longer means supplying all material information: it instead means the right boxes have been ticked as to required disclosure, whether it is adequate and meaningful, or not.
Well over 90% of companies are not audited. Those same companies that are not audited can supply almost meaningless data on the public record that supplies almost no useful data to anyone.
The availability of data on the UK’s corporate sector has crashed. At a time when the impact of the private sector has become ever more significant in people’s lives (think of Carillion, BHS and Thomas Cook), the private sector determines what the public may know about itself. Accountability no longer exists until companies fail and MPs and regulators enter the fray when the battle is over to bayonet the wounded.
I no longer perform audits, so have no vested interest there, and my clients receive detailed financial information about their businesses from the software and data analytics we use to prepare regular financial information such as detailed monthly management reports.
The irony is that there is more accurate and up to date financial data available to the corporate sector than there ever has been. We regularly perform a deep dive into a client’s data to analyse sales and margins by customer, product and channel. We monitor liquidity, working capital and cash flow. The warning signs of a failing business are there to see – if you look in the right place – so why isn’t this data made available to the public at large?
It’s time it was. Limited liability comes with a responsibility and duty to act in the best interests of all stakeholders – employees and suppliers in particular – which seems to have been forgotten.
There is much that is wrong with financial reporting and auditing which only reforming legislation will solve. My profession has made huge advances during the past 40 years, but in this respect has gone backwards.