The numbers game

The role of the accountant has developed dramatically in line with the changing marketplace. MIRIAM DUNN spoke to three key figures at the Malta Institute of Accountants – secretary general, Noel Zerafa, president, Benjamin Rizzo and vice president, Anthony Zarb – on the changes they have witnessed in their profession

How has the role of the accountant evolved over the years?
The accountant’s job has expanded tremendously over the last couple of decades.
Formerly, an accountant’s primary role – especially one working in industry - was number-crunching and producing historic accounts every so often . Today accountants are often called on to play an advisory role at a senior level assisting senior management of which they often form part of. On an international level, the profession has moved forward in a two-fold way; partly because of the changes moulded by the changing economy, but also because of the enhanced status of a number of big accountancy firms.
These international accountancy firms have followed their clients and themselves become global organisations , power houses, if you like, with a huge concentration of resources and brains. This has enabled them to produce a number of new methodologies and ways of doing things. Here in Malta we are affected by what is happening abroad, and we constantly keep abreast of these changes in relation to our practices. The adoption of International Accounting Standards for the preparation of financial statements and the Companies Act requirement to conduct audits in accordance with International Standards on Auditing means that our take-on of new developments is very fast, so the roles of both accountant and auditor are changing all the time, as new rules and regulations come on line.
The Malta Institute of Accountants has been established since 1942 and has the primary role of representing and monitoring the profession. For example, with effect from 2001 our members were required to pursue a stipulated minimum number of hours of post qualification educational activities and we monitor compliance.
The Institute runs its own examinations providing a route for qualification as an accountant. We also provide lectures leading up to these exams. With effect from 2003 we will partner with a leading international professional institute (ACCA) whereby our students will sit exams under a Joint Scheme to be operated with this professional body.

You mentioned some of the changing trends we have witnessed in the profession. Have the legislative changes reflected these?
The government is currently in the process of updating the Accountancy Profession Act. At present, consultation discussions are being held with professionals in the field, including our Institute.
This will be a welcome piece of legislation since the law dates back to 1979. The proposed amendments should help fine-tune a number of areas that need attention to bring them in line with changing trends in the profession.
For example, we would like to see changes made that will allow accountancy firms to have partners who need not necessarily be certified public accountants and auditors. At present, the criteria for appointing partners is restrictive and we would like to see this changed, following what has been done in many countries abroad. which would allow for example, someone who is not an auditor but a tax specialist, to be appointed as a partner of the accounting firm.
In time, the Institute will also be considering the introduction of external quality assurance reviews.
In other countries, professional bodies have adopted the practice of conducting reviews of accounting practices periodically every few years. In the US this has been in place for 20 years, whilst in European countries it is being introduced gradually. We believe that it is time to consider the introduction of quality assurance reviews in the local context.

There have been some cases recently where auditing and accounting companies have been mentioned alongside their clients when there have been problems with the business’ operations. Does this give you cause for concern?
It is difficult to understand why, if a company goes into liquidation leaving creditors unpaid, this would that be the responsibility of the auditors. An auditor is not responsible for a business failure.
As already explained audits have to be carried out in accordance with International Standards on Auditing which lay down detailed rules on the conduct of the audit and which also define its scope. There are very specific guidelines on what to do in various instances, such as detection of fraud or serious error during the course of the audit.
Furthermore, every accountant is bound by the Institute’s code of ethics.
The Institute introduced this for its members and then this was mandated on all warrant holders by the Accountancy Board
Accountants, as a profession must remain independent from their clients and retain objectivity unlike other professionals whose role might be to remain completely on the side of their client.
This means that an auditor should not be influenced by his client as he must be ready to qualify his opinion on the financial statements and in certain circumstances also to resign from his position.
But as far are as anomalies are concerned, the detection of error is easier than the detection of fraud, since fraud ordinarily involves acts designed to conceal it. It must also be emphasised that when undertaking an audit, an auditor adopts an attitude of professional scepticism; but does nottake on the forensic role... If something doesn’t figure then he will have to follow his suspicions through to a much higher level of checking.
Unfortunately, there seems to be a public perception that an auditor who doesn’t detect fraud is at fault, and this is not the case. In spite of a great deal of effort in carrying out an audit, fraud can still go undetected.
It should also be stated that, following a complaint or the receipt of other information, the Institute does take action where it believes someone has not acted in accordance with the professional code and brought the profession into disrepute.

Can this mean that accountants employed directly by a company are put in the delicate position of having to please their boss while also adhering to their code of ethics?
This is, admittedly, a very interesting issue and one that is probably sometimes rather delicate.
Having said that, there is no doubt that the code of ethics applies to all professionals. Integrity must prevail, and one is an accountant by profession, first and foremost, irrespective of who one’s employer is.
Moreover, it can never be in a company’s interest to misrepresent its financial position even though this may seem attractive in the short term.. Once a business does then it sets out on a path that may be very dangerous and could invariably backfire.
It should be stressed that an accountant is perfectly entitled to undertake legitimate tax planning which relates to organising a company’s affairs to minimise tax liability - that is within the law. But it has been shown time and again that a company that plays around with its financial statements, whoever it fools in the process, is likely to suffer in the long run.

You mentioned tax-planning. Have we reached a stage where buzzwords we keep hearing, such as ‘creative accounting’ and ‘earning management’ have become part of the modern accountant’s life?
Earnings management is aimed at helping a business to have a convenient, smooth flow of earnings from one year to another in accordance with market forecasts, while creative accounting involves the employment of accounting techniques and policies to help one get the results one wants.
Creative accounting involves the use of tactics that are within the accounting norms, admittedly, but the practices are open to question since they may distort the true financial position.
Financial statements are there to give information to users, not to provide manufactured results, even if these are produced within the rules. Companies are duty bound to provide accounts that are consistent from one year to another and accounting standards should be employed consistently from one year to the next.

Has your role changed with the Finance Minister’s bid to clamp down on tax evasion?
This is not an issue for the Institute. As tax-payers, if there is tax evasion, we would expect the Finance Ministry to do everything in its power to ensure people are paying the right amount of tax.
For this reason we also have no problem with benchmarking, which is, after all, there as a guide as to what someone should be earning in a certain line of activity, not to increase the tax liability.

Accountants have also been criticised for giving clients the wrong advice in certain situations which could have contributed to Malta’s cash-flow problems by delaying payment of amounts due. How do you react to this?
It is unlikely that an accountant would advise his client from withholding payments of liabilities. Granted, the mentality to do this still exists in some areas, but our notion is that this has more to do with a lack of funds or the entrepreneur’s attitude than the accountant’s advice!
Yes, there are some businessmen using their suppliers’ money to fund their business ventures, but our perception is that a growing number of business operations are becoming more professional and well-run with a good financial controller and corresponding set-up in place.This interview has been reprinted following typological errors last week