Professional regulation: Martin Nimmo charts the history of the Financial Reporting Council and explains the benefits to CIMA and its members of external supervision.

Author:Nimmo, Martin
Position:Technical matters
 
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The amount that CIMA spends on its external regulation as a professional body has had to increase over the years in response to both the needs of its members and the public's expectations of them. This cost now represents 2.5 per cent of the institute's annual budget.

Before 1998 CIMA paid little towards this activity. Like other UK accountancy bodies then, it was virtually self-regulating, although it was ultimately answerable to the Privy Council Office and, less directly, to what's now called the Department for Business, Enterprise and Regulatory Reform. In light of accounting scandals that would culminate in the collapse of blue-chip firms such as Enron and Parmalat, the government felt that this situation was no longer in the public interest, because accountancy bodies were in effect judge and jury over their own activities. Openness was to be the order of the day.

Accountancy regulation in the UK resulted from a number of initiatives. The original plan for an independent regulator, developed in the late nineties, was led from within the profession. The idea was to have one super-regulator covering many functions. It led to the creation of the Accountancy Foundation. According to the Sunday Times (October 20, 2002), the body "was supposed to answer all the concerns of a public worried about the effectiveness of 'chaps regulating chaps'". Two pre-existing functions were the Joint Disciplinary Scheme, which covered auditors and their firms, and the Accounting Standards Board (ASB). The foundation added two more: the Ethics Standards Board and the Review Board. The latter board primarily comprised lay members who would bring commercial experience and independence to regulation. Its primary task would be to act as a buffer between the institutes, which funded it, and the regulators who did the work.

But this arrangement was dogged from the start by disagreements over funding. As a result, the foundation missed its scheduled January 2000 inception date by two years. CIMA, less exposed both to risk and to the strict regulations for auditors, negotiated a cap on its contribution for the first three years. Finally, a constitution and an arrangement for tripartite funding--by the government, the profession and business--was agreed by all the stakeholders. Yet the new structure became mired in problems and it was accused of lacking cohesion at a time when focus was desperately needed.

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Patricia Hewitt, secretary of state...

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