Competition or merger?

Competition is usually regarded as a watchword for healthy business and consumer interests. So why has merger reared its head again in the UK accountancy profession? Michelle Perry reports

The obstacles facing the current push to reduce the number of accountancy bodies in the UK in many respects mirrors the difficulties confronting European politicians over the ratification of the proposed constitution.

At stake are 100-year-old brands and traditions, with nationalistic feelings fostering protectionism. It begs the question that if European politicians cannot achieve union with all the resources at their disposal, will the institutes’ ruling classes ever reach their goal?

Although there is resistance among members to the proposed merger, or rather takeover, most aren’t against consolidation per se, but rather who is driving it and what the outcome will be.

For the large part, ICAEW members who oppose the move to consolidate the professional bodies fear their qualification and professional title will be diluted and, therefore, less respected. It won’t be an easy battle.

Consolidation talks over whether the UK’s six main accountancy institutes should merge are nothing new. Over the past 30 years there have been several attempts by differing combinations of institutes. All have failed.

Arguably, however, there are more pressing reasons now for consolidation.

“The world is completely different now,” says Mike Barnes, outgoing President at CIPFA. CIPFA, the public sector accountancy body, is one of the possible three UK bodies that will morph to become one.

The ICAEW is leading the merger talks and the Chartered Institute of Management Accountants is currently holding out for “better conditions” before it throws its lot in.

“It’s absolutely critical that we get the terms right. If it takes a bit longer then it’s worth the effort,” says Charles Tilley, chief executive of CIMA.

Barnes has a point. When the six institutes were established - the first institute, ICAS, was set up 150 years ago - the accountancy world was much smaller in its outlook. The professional duties, needs and aims of, for example, Scottish accountants probably barely stretched beyond their county borders, let alone those of Scotland.

The last decade, however, has seen ever more standardisation in the world of accountancy. Now we have the reality of international accounting standards used in over 90 countries around the world. Auditing and ethical standards are being harmonised for use around the world. And regulators, legislators and tax authorities are also collaborating more closely.

Globalisation and the growing success and influence of emerging economies, particularly India and China, should make all of the UK’s accountants consider where they sit in the grand scale of things.

Markets are developing in a way that requires harmonisation of skills and abilities. The increasing push to standardise processes and systems in finance and accountancy within multi-nationals means that accountants, wherever they may be, must have those skills. All of the world’s accountants realise this. So why not collaborate more within the UK?

There are some topics on which the institutes have managed to agree, such as continuous professional development. But can more be done?

Ken Frost, ICAEW member, who has set up a website dedicated to rallying members to stop the merger, says he isn’t against consolidation.

“I would be delighted if we could enter into discussions with ICAS. We have to merge like with like,” says Frost. He doesn’t buy the ICAEW’s argument that merging with CIPFA will make their voice stronger in the UK or the world. If successful, it will add around 13,000 members to the ICAEW’s 120,000-strong membership.

But perhaps the more important question should be, is it right to have competition among professional bodies at all?

Des Hudson, chief executive of the Institute of Chartered Accountants of Scotland - a body currently opposed to consolidation - thinks so.

“It seems strange that a profession at the forefront of wealth creation and capital markets should become one body. We take the view that competition is good for the profession, good for users and members,” says Hudson.

And CIPFA’s Barnes also supports competition, in part. “It would be good if the UK could get to two [professional] bodies.”

But it doesn’t change the fact that there are concerns that, on a global scale, Britain’s profession will have less influence if there continues to be internecine bickering.

CCAB improvements

ICAS says this can be cured through a better structure of the existing Consultative Committee of Accountancy Bodies, an organisation that brings all six professional bodies together.

“The CCAB needs to change in the way it works. With goodwill and intent it can change and project that voice as one in the EU and worldwide,” says Hudson.

“The arguments need to be determined on merit and not on membership or size,” he adds.

Andrew Harding, executive director of ACCA UK, agrees: “The CCAB needs to take a look at itself. We need something that is genuinely representative of the profession and treats all member bodies with respect.

“ACCA is an international body and we are watching developments in the UK with interest. ACCA UK will work with the other UK bodies through CCAB regardless of the outcome.”

Of course, there are some compelling reasons why a little consolidation could help certain elements of the British profession.

CIPFA’s strengths as a niche public sector body are, to a certain extent, also its weaknesses. Nowadays, students are less likely to want to narrow down their chances at the beginning of their careers. This is reflected in CIPFA’s membership growth rate, which grew at just 0.4% annually between 1999 and 2003, according to research produced by the Financial Reporting Council for the years.

Equally, the ICAEW’s annual growth rate is suffering at 1.9% compared to its counterparts. The institute also struggles to compete with ACCA on attracting membership on an international level, although it remains the UK’s largest body in terms of membership with over 120,000 members.

CIMA has its own niche in industry but less of an international presence, while ACCA is generalist, attracting members who go on to work in all sectors. There are also gaping differences between the accountancy bodies in the numbers and rates of growth in student members worldwide.

Will bigger mean better for members and the public?

Professor Prem Sikka of the department of accounting, finance and management at the University of Essex, and an ACCA member, doesn’t believe that larger always equates to greater success.

“They [institutes] think by being big it’s good and great. It’s the masters of the universe syndrome. ACCA has got members in industry, commerce and firms of all sizes. I can’t see how one body can speak for all those members now, so how can a bigger one work?”

There are no clear solutions on how to move forward. It is an unenviable task and one that ICAEW CEO, Eric Anstee, clearly doesn’t relish, although he believes it is “the best way forward” and that the CCAB route is not appropriate for resolving issues of consolidation. “When I came along I didn’t expect to have to grapple with this issue,” he says.

Arguably, there is room for some form of consolidation in the UK profession, but it would also be wise to retain competition. It is not only healthy but ensures choice.

Ultimately, the decision rests with the members who either don’t agree with the merger proposals or are too apathetic to vote.

The ICAEW needs to gain 66% of total membership to approve its plans. In a recent vote on a subscription fees hike, which it won, only roughly 12% of its members, 15,000, voted.

Michelle Perry is a freelance journalist specialising in financial and business issues.