The Institute of Chartered Accountants, representative of the UK’s accountancy profession, is under fire for its decision to take research funding for its policy response in the wake of the Enron scandal from the big four accountancy firms.
The institute has taken £40,000 from Deloitte & Touche, Ernst & Young, KPMG, and PwC to pay for the research. This has been seen as a blow to its independence as the big four firms have all come out against radical reform to the industry, partly as they would potentially have the most to lose.
The post-Enron research will look at the issue of potential conflicts of interest resulting when auditors also provide clients with non-audit consultancy services, such as tax advice. This was inspired by Andersen’s involvement in the Enron collapse and accusations that their $25 million audit was compromised by the $27 million it received for non-audit services. The research is due for completion during the summer. Portsmouth and Stirling universities have been commissioned to produce the research, valued at £10,000.
The institute’s funds are normally raised through subscription fees paid by the membership, so it is unusual for it to receive one-off payments from major firms. The reason given for the decision was that it was necessary due to the commitment to a balanced budget.
The institute’s incoming president, Peter Wyman, has addressed the attacks on the independence and credibility of the research, referring to such suggestions as absolute nonsense. However, Douglas Llambias, a member of the institute’s governing council is among those attacking the funding decision, and has also complained that the institute has been lethargic in responding to the crisis.
The big four firms also recently funded the institute’s post-Enron policy paper presented to the House of Commons Treasury select committee. That paper rejected some radical reforms of the accountancy industry, including a ban on auditors providing non-audit services.
The institute is expected this week to support limited proposals for reform in its first policy response to Enron. These reforms would include limited restrictions on the provision of non-audit services.