Accounting profession: an open letter

Dear Members of the Council of Institute of Chartered Accountants of Pakistan Karachi
Objective The purpose of this letter, and the presentation, is to place before the Council of the Institute of Chartered Accountants [Institute], the supreme body of the Institute views, observations and some suggestions by a person who has been involved in affairs of the Institute as Council Member for two terms and is engaged in professional practice in accounting for over 30 years. The need for this recourse emanated as in author's view, certain matters, very important for the accounting profession in Pakistan evolving at a fast pace and are expected to attain maturity in near future. Such matters can have long term effect on the profession. It is the responsibility of all the members of the Institute and specially the Past Presidents and Council Members to place before the Council their views and assist them (Council) in any possible manner, for the common goal of sustainable development of profession in the country. Author considers existence of a vibrant accounting profession an essential pre-requisite for the economic development of the country.
In summary this paper will cover only four subjects being:
(i) Regulation of Accounting Profession in Pakistan and the Concept of Oversight;
(ii) The Effects of Stagnation in the Size and Role of Accounting Profession in Pakistan;
(iii) Intake for Professional Examination and the Vires of examining body for Undergraduates Persons; and;
(iv) Consolidation and Improvement of Examination Process.
Regulation of accounting profession and oversight Unlike UK, USA and many other countries, the status of the Institute has been placed at a very high pedestal in the matter of regulation of the accounting profession. It is a statutory body created by an Act of Parliament. By that Act, it is the only 'regulator' of accounting profession in the country. It is for this reason that unlike UK and USA the Council of the Institute comprises of elected members and nominees by the government of Pakistan at a very high level.
Under the statute, all functions of 'regulation' of accounting profession are statutorily assigned to the Institute. It is reiterated that it is not so in the UK, the US and many other countries. That right can only be substituted or amended by an Act of Parliament.
In all practical sense, all the functions of the Council are to be taken in consultation and in agreement with the Government as for high level nominees are part of all the decisions made by the Council. It is important that Chairman Securities and Exchange Commission of Pakistan is Ex-Officio member, not being a member in person of the Council. This means that all the decisions of the Council are effectively made in consultation and concurrence of Corporate Law Regulator.
This practice is unique in Pakistan and India where profession has been established under statutes of the Parliament and such statutes have been designed after taking into account the 'shortcomings' that evolved specially in UK because of lack of statutory sanction. Let it be known, that the Institute was designed on the lines of the ICAEW except the fundamental difference that Government is represented on the Council. This fundamental difference has to be applied in its complete perspective.
In this situation, the matter of formation of any oversight arrangement that can override the powers of the Council, which in author's view is extra constitutional. Notwithstanding the legal status, even from practical and policy viewpoint introduction of any parallel system of regulation of accounting profession will not be a productive recourse.
The matter of 'oversight' is highly important and developments in this field throughout the world are extremely relevant. International practices on that account cannot be ignored. However, in Pakistan and India where such mechanism has been in-built in the statute the solution will be 'effectiveness' of the role of government nominees already being integral part of the Council.
The Council must have taken these facts into account whilst deliberating this subject; however, there is always a scope of a fresh view on any matter. In the case if, on account of prevalence of international practices and commitment of the Government of Pakistan with international agencies, any oversight arrangement is to be introduced for the regulation of accounting profession then in the presence of Chartered Accountant's Ordinance, 1961 only an Act of Parliament can achieve the desired objectives. This, in simple sense, requires an Act of Parliament for Oversight which as per the author is not desired or required in the present situation and the appropriate remedy and basis for improved oversight is effective role of Government nominees in the Council. Formation of any subordinate body is neither legally possible nor it is practically desirable.
Stagnation in the size and role of accounting profession in Pakistan Institute is a professional body. Distinctive attribute of this profession is mandatory apprenticeship for a particular period with an accounting firm or industry. This apprenticeship is essentially provided by the firms of Chartered Accountants. This is the prevalent practice in whole Anglo-Saxon world. Training at industry level is and will not be a preferred option for students in the foreseeable future for very practical reasons. Consequently in the forthcoming future, professional training will continue to be provided by the professional accounting firms. This 'correlates' the size of professional firms with the future of the profession.
The size of accounting profession in the country has not developed as is desired in the present economic scenario. Total size of accounting profession in terms of turnover is less than Rs 10 to 12 billion. These numbers represent a low level even under the present status of economic activities in the country and the same can be improved substantially. It has to improve substantially if profession has to develop on a sustainable basis. Furthermore, perceptions of practices where considerations for services do not fall within the system should be strongly crushed.
The number of professional accountants is also not at the level desired by the country. Notwithstanding, all other issues, one of the major impediment specially in future will be availability of apprenticeship position on account of almost stagnated level of professional practice in the country.
The number of qualified persons seeking professional practice is, in author's view, decreasing in real terms. There are many reasons for the same. From the Institute's viewpoint, unless and until the size and role of accounting profession is substantially improved specially for small and medium sized enterprises, which comprise a substantial part of the economy of Pakistan, there cannot be sustainable development of quality resource in this field. It works in a circle.
It is estimated that at present the capability to train by the professional firms ranges between 2000 to 3000 persons only. This means that intake per year roams around only 500 to 600 persons only. This number is very low in relation to human resource availability in Pakistan.
For various reasons, including some quality issues discussed below, other options for this intake, not being the one preferred by the Institute, may be explored by the professional firms. This approach will be detrimental for the Institute. Nevertheless, it is important to appreciate that all these matters are ultimately decided on economic rationale and regulatory sanctions or otherwise are effectively not relevant. This raises the fundamental question whether or not the Institute be at all involved in deciding the intake for the firms. This matter has also been discussed in the following paragraphs.
It would be a failure of the Institute also if deserving people do not find place to undertake their professional training. Author foresees emergence of this situation in near future.
These factors reveal that there is a direct relationship between the size and role of accounting profession and the success of the Institute.
It is being felt that Institute is emphasizing on an 'educational' institution model. In author's view, Institute is neither required nor designed on that model. There is a need to gradually divorce from the educational institution's model. There is a feeling, in the author's mind, that desired emphasis is not being laid down on the development of accounting profession and activities of the Institute are more geared towards educating under graduate students.
A fundamental decision is required whether or not the Institute can in the long run operate on an educational institution model.
In India and many other developing countries Institute has played very active role in increasing the size of the profession. For example, in India there is a requirement of audit of all branches of the banks by a firm of accountants. This service is a backbone for the survival of profession in the country for small and medium sized firms. Many such avenues have to be explored. This will mutually benefit the profession and the country.
The role of accounting profession in general and Institute in particular in overall economic and financial activities of the country is another subject that should be seriously reviewed by the Council. It is desired that the Institute should remain the single independent, transparent, competent voice on all matters relating to accounting and finance. That role appears to be depleting.
In this field, it is desired that the Council should place special emphasis on the development of accounting profession. As a correlation to the same, a plan is to be laid down for sustainable increase in the opportunities where professional training can be undertaken.
Intake for professional examination and the vires of undergraduate examination Institute in Pakistan, unlike almost all the other professional examination bodies, undertook step of examining undergraduate persons in last decade.
Institute, by its regulatory and other mechanisms, implied that such undergraduates examined by the Institute should be the 'only' source of intake for professional examination and apprenticeship for professional firms. Eligibility of professional examination for all professions, including medicine, engineering, law and accounting can only be done, for a person who is a 'graduate' or has undertaken education for at least fourteen to sixteen years.
Professional qualification is a step beyond a graduate degree by any recognized university. There can be lengthy discussion on the merits and demerits of the strategy adopted in the past. It is considered by the author that time has come to review and re-evaluate the whole structure. This re-evaluation is to first decide the fundamental question whether or not Institute is required or desired to intrude in such matters. Some observations on the matter are given in the following paragraphs.
The first question is the vires of examining undergraduates by Institute. This Institute has been formed for the purpose of regulation of accounting profession. It is therefore in strict sense, only eligible or required to examine whether or not a person is capable of being a member of 'professional accounting body'. It is not intended or desired to undertake or embark into matters relating to educating and examining undergraduate persons.
Notwithstanding any other aspect providing education and examining even though named so, cannot be treated as 'professional examination'.
This step of embarking into this sphere which the author considers outside the scope of the activities statutorily conferred to Institute, was taken at a particular time. The status of educational standards in the country, educational environment, role of public and private sector involvement and availability of foreign institution's examination in the country has totally changed the environment. There is a need for serious out-of-box evaluation of the present policy.
In author's view Institute has to undertake 'only' two functions with reference to examination activities. Firstly, it has to identify the persons who are eligible for being examined for professional examination and (ii) undertaking professional examination. Any other subject, beyond the same or intrusion in the country's education system is virtually outside the scope and ambit of the Institute. In the matter of identifying the person eligible to be examined for professional examination, under the present policies, a home-grown system has been designed. This has been named differently (foundation, modular, certification etc.) over the time, however in all cases this represents the examination of undergraduate persons and providing them a certificate/diploma/etc for being eligible for professional examination. This activity is not primary function of the Institute.
We are all aware that under the law Institute is not a 'degree awarding' institute under the Pakistan law. It is rightly so as professional qualifications are specifically assigned to special bodies created by statutes such as Institute of Chartered Accountants of Pakistan or College of Physician & Surgeons. In this situation, as soon as possible there has to be a divorce from such activities in this changed environment.
Author is fully aware of the fact that examination fee on this account is one of the major source of revenue for the Institute. This is a relevant consideration, however the same cannot override the primary function, empowering provisions and sustainable quality for professional examination.
In addition to all other considerations, in the changed environment there has to be an appreciation that the concept of induction in the profession only for those people who have been educated in field of accounting is also to be reviewed. Though not relevant in all cases, for example in ICAEW, preferred induction by first grade firms is made on the basis of university from which a person has graduated not being the particular course/degree so obtained.
Empirical evidences in our society has revealed that bulk of quality students do not like to close their options of high level education after twelve years of education. This is reason of separation of many 'A' class students from the 'system'. Resultantly only residuary 'B' or 'C' classes opts for that course. This assertion may vary in certain cases however general trends not particular cases have to be taken into account whilst deciding matter. Resultantly in author's view these measures result in deprivation of the profession from the merit available in the country. This deprivation is multiplied by the presence of comparative foreign certifications available in the field.
In author's view there should be immediate divorce of Institute from any educational activity and examination for under graduate persons. Furthermore, all persons who are graduate or have completed certain years of education in relevant fields should be 'equally', without any discrimination, allowed to commence and appear in the professional examination of the Institute. The concept of 'relevant field' is to be kept as open as possible.
The professional firms, being the ultimate employers will decide the best course available for them. Market will itself adjust for the same. It is not the Institute's role to decide which course of education is to be adopted. Anyone being capable of passing a professional examination is eligible to be inducted into the system. For example, in future, with high level of requirement of technology in assurance and other fields, a qualified electrical engineer may also be very productive resource for the profession if he/she passes the high professional examination of the Institute. As a long-term vision author feels that profession has to look beyond the traditional approach.
This is the model applicable everywhere else and is the only manner of attracting talent in the field.
Consolidation and improvement of examination process Quality, standard and integrity of the examination system of the professional examination are the real strength of the Institute. Author is fully aware of the efforts required to upkeep such attributes. A reasonable number of members are now involved in imparting education for passing professional and non-professional examination being undertaken by the Institute. In this situation, there is an additional need for avoiding any conflict of interest situation. It is therefore suggested that in-built system be developed to avoid any conflict of interest situation in the field of examination.
There had been gradual evolution of bringing confidence in the examination system including dispelling the incorrect notions about the allegation that 'pass result' is managed by the Institute. Various steps had been taken in the past in this respect. This changed environment requires that a transformational change be introduced to review whether correct attributes are being examined to confer a professional qualification. Council is fully aware of such measures however as a person involved in interaction with lot of qualified people, there is a view that there is a need to review the attributes which the Institute considers as essential for conferring professional qualification. In the present time, the relevant attribute is the capability of 'applying' a particular knowledge rather than that knowledge itself.
Caveat The comments made in the aforesaid paragraphs are the personal views of the author and these do not represent the views of the firm where the author is a partner. The purpose of this letter is only to bring in record certain pertinent issues that, in authors view, are important for taking the profession into next stage of development.
(The writer is past President of the Institute of Chartered Accountants to the Council of Institute of Chartered Accountants of Pakistan)