HOW THE ACCOUNTING PROFESSION IN AUSTRALIA IS ADAPTING WITH ITS CHANGING BUSINESS ENVIRONMENT

By : Robert Ward, B. Com. 1. INTRODUCTION 2. THE CHANGING BUSINESS ENVIRONMENT 3. THE PROFESIONS RESPONSE 4. BROADING ENTRY TO THE PROFESSION (21C) 5. UNIVERSITY EDUCATION 6. REGULATION

INTRODUCTION
Thank you very much for the opprtunity and the honor of addressing the Convention today. My colleague representing the Australian Society of CPAs, Mr. Dennis Cortese, has outlined to you the main forces for changing impacting on the business environment in which members of the accountancy profession work and operate. My task is to outlined how the profession is coping with those changes and the steps we are taking in respons to the challenges we seen facing our members. The institute of Chartered Accountants in Australia represents more than 28.000 members in Australia and overseas. Our memberships spans firms of all size in public practise form sole plractitionesrs to the Big Six accountancy firms and all specializations within the broad discipline of accountancy. Futhermore, approximately 40 % of our member are principals or employees in commerse or as we refer to them, Chartered Accountants in Business or CABs. Like the Australian Society of CPAs, the institute of Chartered Accountants in Australia has a long tradition in Australia and members of both bodies place significant value on the status of their professional designations. The value of both the Chartered Accountants designations and the CPA designation is derived from the standards that support them standards for educational prerequisites for membership and continuing professional education; standards for professional practise and ethical conduct; technical standard governing disciplines such as audit and accounting; and quality standards for members in public practice. The standards that we set, even though they support and underpin our professional designations, are not sufficient of the themselves to guarantee the continuing value of our professional designations. The extent to which the

Chartered Accountans or CPA designations remain of value will be determined by the market, according to how well our members are able to satisfy and serve the needs of their clients in the future. In rapidly changing business environment, the status of professional dsignations must be constantly reaffirmed by delivering value services to the clients.

THE CHANGING BUSINESS ENVIRONMENT

The past decade has witnessed rapid change in many areas of life and business has been at the forefront of this change. Technological change, globalisation and the opening of the markets (both internationally and within national boundaries) are arguably the most significant change factors impacting on the business environment. Technological change has had significant impact on the way work is conducted. Most significant are the effects of the technological revolution on the communications and information. With regard to technological change, I think the following quotation sums up well our current situation : The accounting profession now stands at cross roads. Twentieht century has witnessed a phenomenal progress in technology with its consequent economic and social changes. The growth of automation in industry and administration has created problems for which accountants have yet to find solutions. The role of the accountant has expanded form mere accounting to significant role in financial affairs of a business entity and the next natural stage of development is the role that he can play in the economy regional, national and international In order to rise to the occasion and adequate meet the challege of the new problems the accountants should be prepared to interweave accounting with knowledge in alied fieldsit is only by a process of crossfertilization that he can enrich the accounting knowledge and make it adequate to make it serve the needs of the new situation. The choice before the profession is to expand or stagnate; to diversify or permit other experts to fill the void; collaborate with allied field or abdicate its destined role. The only point that I would like to make about these remarks is that they were in fact delivered at the Fourth Conference of Asia and Pacific Accountants in 1965. The message is that ongoing stechnological change is a constant that we have been living with it for three decades perhaps the only difference now is the pace of change that we must deal with.

The process of globalisation and the opening of international markets is providing immense opportunities and challenges to business and its advisers. Many business are seeking opprtunities in overseas markets. Business that do not are able to quarantine themselves from this trend and must also attempt to meet international best practice standards to maintain their competitiveness. Within nation economies, many regulated markets are being opened to competition from nontraditional service providers. In Australia, government business enterprises, utilities such as electricity and the professions are all now subject to competition policy. The process of removing regulations that no longer serves its purpose (or is no longer the best or most efficient way of achieving a particular goal) is still in its incipent stage, but it underlines the need for all elements of the business community to focus on delivering value. Those that do not will not be able to hide behind costly regulation and other anti-competitive mechanisms to protect their place in market. I should add a final point I relation to the business environment and how it is changing. The environment in which business and its advisers operate is characterized by complexity. Whist many markets are being deregulated, the behavior of the participants within markets is subject to increasing regulation. Over the course of the past decade ironically the period when so much attention has been given to the deregulation of financial markets and the like regulation has grown geometrically and the complexity of (at least Australias) tax laws, superannuation laws, employment laws, environment laws, ands corporation laws has increased commensurably

THE PROFESIONS RESPONSE

Againts this brief background, I would naw like to turn to the response of the profession to these influences shaping our business environment. How is the profession responding to the challenges of technology, globalisation and complexity? Speaking for the Institute of Chartered Accountants in Australia, we believe that accountants must be able to adapt to the changing demands of their environment, which means the changing demands of clients. Essentially, accountants must be able to add value to their clients business, which for many years means moving beyond compliance work to providing business and management advisory service. I say for many because compliance work will clearly remain important due to the complexity of the regulatory environment in which business is often beyond the capacity, or too burdensome on the time, of business operators, particularly small business. Compliance indeed is becoming a series of

specializations in its own right due to the complexity of the issues involved. Witness the rise experts in the fields of indirect tax, customs duties, capital gains tax and so forth. Many business now seek more from their external professional advisers (and their professional employees) than just compliance work. Many clients seek a range of services that can add real value to their business and their accountant is ussually the first source of such advice at present. However, we cannot take this for granted many other non-accountants currently occupy as the foremost source of external advice to business and we must compete to hold this position. To do so, it is essential that accountants are highly educated and professionally trained. Setting high entry standards to the profession and maintaining high standards of ethical and professional behavior are essential prerequisites if the profession is to serve the interest of clients well. Arguably we have done these things well in the past. What we must now also ensure is that our members are adaptable and have a wider range of skills to cope with the changing requirements of business.

BROADING ENTRY TO THE PROFESSION (21C)

The demands placed on accountants are changing rapidly. Technology is not only imposing a much greater need for computer and system literacy amongst accountants but also is enabling accountants to access technical knowledge and expertise more easily than in the past. In the way technology is reducing the need for accountants to personally learn and retain a large body of detailed technical knowledge. Accountants are increasingly being called on to act more general business advisers-looking up from the numbers and providing a wide range of management and business services. Additionally, globalisation and the establishment of international network and business links is adding a new dimension a new dimension to the skill-base that accountants must possess if they are to advise clients from different cultural backgrounds or indeed located in different countries. The expectations of employers of professional accountants (both in public practice and in commerce and industry) is similarly changing. Research indicates that employers require their accountants to possessnot only the traditional technical of the profession but also developed interpersonal skills, verbal and written communication capacities, and good personal presentation and selfconfidence.

Yet it is precisely these additional skills areas that accountants are perceived to be weak in and that very few accounting and business graduates are considered to possess. Accordingly, in 1993 the ICAA established a special task force, known as The Skills for the twenty-first century Task Force, to investigate issues related to the changing demands on accountants and how to equip members of the ICAA to face these challenges. The task force examined the types of skills and attributes a Chartered Accountant should ideally posses to enable him or her to perform well and successfully serve clients in the year 2000 and beyond. The skills identified were : ! Accounting skills : - including the ability to analyze financial data. Knowledge of taxation, audit, IT systems, capital markets and in-depth knowledge of one or more specialized accounting areas; ! Communication skills : - the ability to listen effectively, to write and speak clearly; to understand clientsneeds; the capacity to present, discuss and defend views; and the ability to communicate and empathize with people from different nations, cultures and socioeconomic backgrounds; ! Negotiation skills; ! Interpersonal skills:- enabling the accountants to motivate and develop others, delegate tasks, resolve conflict, demonstrate leadership, manage people and interacts with diverse groups of clients; ! Intellectual capacities for logical, deductive and abstract thinking:- the ability to identify and solve problems; handle athical dilemmas; and a capacity for forward-looking, progressive thinking; ! Management and organizational knowledge to give the Chartered Accountants a good understanding of the activities of business, government and non-profit groups; business culture, marketing, group dynamics and resources managemnt; ! Personal attributes: - integrity, judgment, ethics, and a commitment to life long education. Recognizing that the 21st Century accountant will need to combine high level technical knowledge with these other skills, the task force considered that the educational process for the ICAA in the future must on the dual axes of skill flexibility combined with outstanding customer service. Accordingly the task force recommend in its 1994 report that : a. the route for graduate entrants to the profession should be broadened to introduce a broader range of skills and methodologies to the profession b. there needed to be greater flexibility in post-graduate (pre-entry) professional training to accommodate a different mix of graduates seeking

entry to the profession to give non-business degree entrants the technical knowledge they required and give business degree entrants a greater range of generic skills; and c. avenues must be provided to facilitate re-skilling during an accountants professional career, entailing a CPE for life concept reflecting the rality of dynamic business circumstances necessitating a greater range of educational choice, development of both technical and generic skills and opprtunities for specialization. After receiving feedback to the recommendations of the task force, implementation of the recommendation is focused in three main areas university education, the institutes Professional Year Programme (PY) and continuing professional education.

UNIVERSITY EDUCATION
A task force was set up with the ICAA, ASPA and AAANZ (representing accounting a academics) to review the structure of undergraduate programs. After extensive consultation with universities and employers, new guidelines have been developed that will provide a more flexible structure within degree programs and a better balance between technical and general education and universities are now working to these guidelines. At the same time a framework for the development of a fast track accounting course for non-accounting graduates is being set. This will assist to achieve the base-broadening identified as desirable by the Skills the 21st Century Task Force. The PY PY regulations are being rewritten to make them more user-friendly to both members and candidates and to reduce complexity, especially in respect of service requirements. Additionally, the PY in Commerce introduced in the early 1990s is now an established and sucsessful path to membership and is being expanded to provide more opprtunities for graduates seeking to undertake the PY and obtain the Chartered Accountant designation. The PY is now also being offered offshore, at this stage in Hong Kong, Malaysia and Singapore. With growing numbers of Chartered Accountants working in this dynamic region, the ICAA identified the desirability of offering the PY in these location to enable members to share their skills and expertise in training candidates for membership of the ICAA. We believe that this will also

pave the way for the ICAA to play a more active role and improve services to our members in the region. Continuing Proffesional Education CPE options are being progressively expanded to cater for the realty of member facing a number of different career and challenges during their working life. A five year strategy plan is currently being developed for CPE and nationally coordinated courses are being delivered in all states. An example is the development of management advisory services courses being offered to members working with small business clients. These courses focus on the development of accountantsskills in providing management andbusiness solution to small business and align squarely with the aim of enabling members to develop value-added services to assist their clients. The subject of developing specializations within the ICAA is one that is still being considered by the Institute in its strategic planning. The key rationale for proceeding with specialization is to better address the specialist needs of all members, including generalists and those in business (CABs). A specialist would be a Chartered Accountant who has developd and maintained a recognized level of expertise and knowledge in a particular field of the profession, through experience and education beyond that expected of a Chartered Accountant in general. Specialization has no single objective but rather a number of objectives, including public profile, leadership, referral, networking and information provision. The identification of specialist groups would be evolutionary, based on market forces government regulation and member needs. The ICAA is adopting an evolutionary approach to specialization to permit relevant issues such as accreditation, the type of services and organizational structures needed to be progressively addressed. Responses on communicating and technology As I have mentioned already, one of the defining aspects of the business enviroment in which accountants operate is complexity. Without the tools that information tecnology offers the complexity of business life, not to mention regulatiory compliance, would be impossible to navigate. Technology not only allows such complexity to be negotiated but it also shapes our working habits and relation with clients, colleagues and regulators. In the future more and more information will be exchanged, with clients and regulators alike, on-line and more and more function completed with the aid of

standard and task-specific software. A commannd over such technology will be assumed for members of the profession. Access to the information and the speed with which crucial information can be located, disseminated and acted upon, is a vital factor for business and accountants. Information is indeed the currency of our profession whether that information be in the form of set of financial statement for a company, an auditors opinion on those accounts, an expert opinion on the valuation of a companys assers or its viability as a going concern, advice on tax or financial planning, or strategic advice on business planning, product lines, export markets, information technology, environnmental liabilities and the like. Regardless of whether the focus is compliance or value-added services, the speed and security of information transfers, and the ability to mutch and tailor information to the specific need of the end-user, will be important considerations. One of the assumptions of the Skills for the Twenty First Century Task Force was that technology would reduce the need for accountants to personally learn and retain a large body of detailed technical knowledge. This will be the case if accountants are able to access this knowledge trough IT, or access specialist with this knowledge. In a sense, technology has the potential to extend to all accountants, regradless the size of their practise, the benefit that very large practice have been able to enjoy by virtue of their scale and in-house expertise. The creation of synergistic networks of accountants, linked by technology to colleagues and ather sources of expert information, offers considerable potential for member of the profession to expand the services they offer to clients and their capacity for problem solving for business. Information technology of course also offers opprtunities to a accountants in the field of IT consultancy services and in time similar opprtunities may emerge in respect of electronic commerce. A final reason that it is important for accountants tobe at the forefront in adopting and utilizing technology is associated with the image of the profession. Both to attract top-flight recruits to the profession and maintain the competitive position of accountants relative to other service providers, it is imperative that we be leaders in embracing technology. Our efforts in this field have focused on establishing an on-line service to members (both the ICAA and ASCPA have taken initiative). The ICAA foru, as the Institutes service is called, is still relatively small at this stage but is growing strongly as more members see the benefit of connection and the possibilities it offers to their practice. The ICAA is also establishing a site on the world wide web, which we will be launching in the near future.

The ICAA some time ago established an IT Chapter to advance policy on IT issues within the Institute and porovide a focus for members specializing in IT service. In other respect technology poses considerable challenges to the traditional practice of core accounting functions. IT, raises a number of few issues for accountants in respect of matters such as detection of fraud, money laundering, tax avoidance, and the verification of audit trails.

REGULATION
The activiities of members of the accountancy profession are regulated through a combination of formal regulation by government and self regulation by the ICAA and ASCPA. Registration regimes exist for specific activities within the broad field of accountancy, such as auditing, insolvency practice and preparation of tax returns. In respect of these activities, the profession has cooperated with government in past years in reviews of regulatory arrangements impacting on the activities of accountants. Both the institute and the ASCPA, for example, are participating in the federal governments Tax Law improvement project, a project that is seeking to rewrite the tax law in plain english to improve understanding of the law and reduce the burden of compliance with the law for all tax payers. Both bodies similarly have contributed to the review of standards for the tax profession, which has been reviewing the registration requirements for tax practitioners and the adequacy of the regulatory regime governing their activities. Both bodies have major contributors to the public debate on taxation policy in Australia and have been advocates for tax reform to reduce compliance cosrs for business, particulartly small and medium sized business, and have made significant contributions in the area of fringe benefits tax, wholesale sales tax, capital gains tax and related matters. The profession is also working with the regulators (the federal attorney generals department and the australia securities commission respectively) in reviewing the regulation of auditors, including the registration requirement that currently apply, to ensure that this operates as effectively and efficiently as posible. A possible outcome of this review is that responsibility for the registration and the regulation of auditor may be delegated by government to the ICCA and ASCPA reflecting the high standing in which the professional bodies are held

by government and demonstrating the degree of self-regulation that is possible for profession when it adheres to high standards. Beyond these areas, the essentially deregulated approach to regulation of the accountancy profession places the onus squarely on the institute and the society to differntiate our members in the market place from those persons who do not meet the same high standards that we require. Particularly in a markat as open as existing in Australia for the provision of general accountancy services, there is room for the existence of technician-level and quasi-professional bodies to provide a lower level of services if these are required. Indeed such a hierarchy is desirable, for it leaves bodies like the institute and the ASCPA free to specify the highest standards for our members without apology. Both bodies have for many years required members to be graduated of accredited courses from recognized tertiary education institution and have further required prospective members to complete postgraduate qualifications. In an unreserverd and highly competitive market, the value of the qualifications our members hold is tested constantly. In turn, the value of the service that the professional bodies provide to members is similarly under constant scrutiny. For the most part, self- regulation and the maintenance of high standards of profession conduct and the performance is a win-win situation. This is clearly the case in matters such as the setting of educational prerequisites for entry too the profession bodies, spcifying the contiuning professional education requirement that members must comply with. As a matter of principal, we beliave that regulation by the professional itself is likely to be more effectively and more efficient than regulation by government. Members of the profession are preeminent in their knowledge of professional matters. Moreover they have a greater stake than anybody else in the reputation and standing of profession they represent. There is probable no better illustration of this commitment to selfregulation than in the introduction by the institute and ASCPA of their respectuve quality review programs for members in public practice. It is intended that each members in public practice be reviewed every five years through system of peer review. The pragram serves both an aducational function and assurance function. In term of education, we believe that members and their clients will benefit from the quality control program and that this

program will make a valuable contribution in differntiating our members professional qualifications in the market place. Today, business and the community generally not require that the services our members provide, both as pubkic accountants and as employees of corporate Australia, are of the highest quality and add value to the client or employers business, but also require that our members meet the highest ethical standards in their conduct. This places special demands on the professional accountantcy bodies. Not only do we need to assist our member to provide a quality service at a competitive price, but we must also satisfy the community and government that we are meeting our self-regulatiry obligations with diligence and commitment. Similary, as the tasks performed by professional accountans generally become inceasingly specilized and mare diverse, the bodies representing those membes must similarly adapt. To fully represent our members, we must take an interest in the policies that shape total business enviroment in which accoutants operate and respond to challenge that aries.