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ICAEW: a profession buffeted by the winds of change

Fiona Wilkinson, incoming president of the Institute of Chartered Accountants in England and Wales (ICAEW), used her speech at a lunch held at the Chartered Accountants’ Hall in London to address the issues on which she wants to focus during her tenure. An edited version is reproduced below.

When I became vice president two years ago, I thought I would be the first post-Brexit president of the ICAEW. Little did I know. 

Perhaps come 31 October, I will in fact be able to claim that title – or perhaps not. Whatever happens, our priority is – and will continue to be – supporting our members and the wider economy, through the negotiations and beyond.

But Brexit, big as it is, is just one of several challenges facing our profession at the moment. Not least, the very role and purpose of audit is being scrutinised – people are asking whether it is fit for, and relevant in, the 21st century.

This is an issue which is close to my heart, not just as ICAEW president, but also personally. I have spent the whole of my working life in audit – 11 years with a Big Four firm and latterly as a consultant to small and medium-sized practices.

I firmly believe that audit is a great profession that serves a necessary purpose, but it is currently being buffeted by winds of change as never before. We knew that change was necessary. 18 months ago, we were already calling for an independent review into the role of audit – but then, Carillion happened.

The economic and social ramifications of Carillion’s collapse have been substantial. And subsequently, so have the political ramifications. It has been a wake-up call for our profession.

To quote our chief executive, we are truly at a “watershed moment”. There has been intense media scrutiny and an unprecedented number of reviews into audit and its regulation: Sir John Kingman’s Review of the Financial Reporting Council; the Competition and Markets Authority’s (CMA) study into competition and resilience; the BEIS Select Committee’s review into the future of audit; Professor Prem Sikka’s review into the audit market, commissioned by the Labour Party; and now Sir Donald Brydon’s review into the very scope and quality of audit itself.

The recommendations published so far are for sweeping reform of the sector and its regulation.

The Financial Reporting Council is to be replaced by a new, stronger regulator – set up on a statutory basis and accountable to Parliament.

The CMA is proposing operational splits between audit and non-audit services in the largest firms. It is also proposing mandatory joint audits between the Big Four firms and challenger firms for most public interest entities.

And the Brydon Review is now focusing on how far audit needs to evolve to meet the needs of users, the economy and wider society.

We have supported and contributed to these reviews, and continue to do so, viewing them as an opportunity to engage with and show leadership on the audit debate.

For example, we are clear that regulation should always be proportionate. It should be risk-based and closely aligned to the nature of a business. A small business which chooses to have an audit should not have to cross the same hurdles as a bank.

There is recognition now internationally that auditing standards are not fit for purpose for less-complex entities. We will be reviewing and responding to the comments on the IAASB’s discussion paper on the audits of less-complex entities.

For listed entities, there is the possibility that an equivalent of the US’s Sarbanes-Oxley requirements on internal controls will be introduced in the UK. But in the UK, we already have a company law framework more comprehensive than the regime in the US was before Enron.

When you add that to the financial position and prospects procedures required for companies seeking a listing or admission to trading on a UK market, we already have a control framework for the UK that could easily be adapted without much new legislation. So before we invent anything new, let us properly enforce what we already have.

Contributing our insights on these and other technical topics is a responsibility we take very seriously – in the interests of our members, in the interests of our profession, and, as our Royal Charter decrees, in the public interest.

I want to highlight what we are doing: restoring trust in audit and ensuring that there is a bright future for our profession. But our challenges go beyond audit. Wider corporate governance is also under the spotlight: issues such as executive remuneration and stakeholder engagement have attracted widespread criticism, so we are engaging with these issues too. Recent company failures have convinced government that the corporate world needs a serious shake-up.

There is now a perception that corporate decision-makers are out of touch, and that this will not change until the culture of boardrooms changes. This is why diversity on boards is so important – to bring insight from a range of social and educational backgrounds and to avoid ‘group think’. The diversity within our profession has improved dramatically over my working life, but we still have some way to go.

I am proud of what we have achieved and continue to achieve at the ICAEW. For the past two years, I have had the great pleasure of chairing our Diversity Advisory Group. The group advises our board and council on how to improve diversity and inclusion.

As chair, I have seen ICAEW sign up to the Women in Finance Charter, the Tech She Can Charter, and to the Disability Mark. I believe strongly in the importance of initiatives like these; they make us set targets and thus force us to improve. Last year, we hosted the Stonewall Workplace Equality Index Awards in this room, and we are engaged in other LGBT initiatives, including the Professional Services LGBT Group.

We have also appointed diversity champions. Many of these are young people with diverse characteristics who will, for example, visit schools and universities, promoting our profession to students as an inclusive one, and one that encourages social mobility.

I know that diversity, inclusion and social mobility will continue as priorities for ICAEW in the coming year and beyond, and I want to take this message with me to all our members around the world.

Which brings me to what is going to be one of the highlights of my presidential year: the centenary of our first female member. I am only the third female president of ICAEW. By a bit of serendipity, our first female member, Mary Harris Smith, joined us in May 1920 – the centenary of which just falls into my presidential year.

We are celebrating this event in various ways. For example, we have commissioned a portrait of her and we are also asking our district societies in the UK and our member groups around the world to consider holding events which celebrate women. I am happy to say that many are already planned.

We are celebrating Mary Harris Smith not just as our first female member, but because of the efforts that she went to join us. Being a woman, her application was rejected on several occasions.

Change finally came following the passing of the Sex Disqualification (Removal) Act after the First World War in December 1919. It became illegal for professional bodies to discriminate on the grounds of gender alone.

Five months later, in May 1920, Mary was finally admitted to the ICAEW. If I tell you that she was born in 1844, you can work out that she was 76 when she joined us. Her resilience and persistence deserve the admiration of all of us, and I want us to celebrate this over the next year. She must have been a very remarkable woman.

Fortunately, attitudes have changed, and we are proud of how far our institute, our profession and the world have come in the past 100 years.

It is going to be an enormously busy, highly challenging and, frankly, exciting year ahead. I know that I will not be short of things to do.

I am looking forward to meeting members around the world, and to working together with our chief executive, Michael Izza, deputy president David Matthews, and vice-president Will Brooks, and all of our amazing staff. I am delighted to be your president. 

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