S2018000339 ESSAY-2

“ACCOUNTANCY PROFESSION: NEED AND CHARACTERISTICS OF GOOD

REGULATION”

Accountancy is a “profession, its members and its professional institutes have the obligations
outlined. Thus, members of the accountancy profession contribute to the efficient allocation and
management of resources in both the private and public sectors, and to the operation of financial
and capital markets, and through these to the production of goods and services in their
communities which benefits the economy. As such, how the accountancy profession ought to be
managed has been the subject of much discussion in the recent years and there has been a lot of
weighty change, as professional accountants , their clients, professional accountancy bodies and
governments try to guarantee that the profession keeps on conveying high quality services and
adds to monetary development and improvement. Hence, this essay will elaborate on the need for
regulation of auditors and characteristic of regulation in an accountancy profession”.

To begin with, “the need for and nature of regulation of auditors in the accountancy profession is
dependent on its profession and the market conditions in which it operates. There are a number
of reasons why regulation might be necessary to ensure that appropriate quality is provided in the
market for accounting services. These include enforcement of ethical rules and technical
standards and the need to represent non contracting users of accounting services, such as
investors and creditors. In recent years, for example, ethical failures on the part of some
members of the profession such as Enron the 7th largest US Company collapsed, where the
auditors (Arthur Andersen) mislead everyone by misrepresentation of audited Financial
Statements. Thus, the resulting lack of confidence in financial reporting resulted in changes in
the regulation of the profession in many parts of the world. Hence, regulation can address the
knowledge imbalance between the auditor and client by providing assurance to the client that the
auditor has the necessary qualifications and will meet the appropriate professional standards and
they are receiving services of the right quality. As such, regulation can address where parties
outside the contracting parties (the client and auditor) either receive benefits or incur costs as a
result of the transaction. Thus, regulation can ensure that those benefits and costs to third parties
are taken into account in determining what service is to be produced, and at what quality. In
addition, effective regulation must not be anti-competitive. Lastly, regulation seeks to ensure the
right quality and, where appropriate, consistency in the quality of accountancy” services.

Moving on, “it is compulsory that governments and professional accountancy bodies regulate in
conformance with the criteria so that regulation is proportionate, transparent, non-discriminatory,
targeted, implemented consistently and fairly, and subject to regular review. Thus, transparency
is in particular crucial as it permits the general public to understand how the profession is being
regulated and what the regulator is doing. This information adds to the believability of
regulations and makes it increasingly successful by enabling people in general to pass judgment
on the estimation of regulation and its effect available for proficient services. As such, similar to
segregation of duties the auditors too cannot be providing consulting services to a company and
also performing their internal and external audit. Also, there should not be any personal
relationship with the client and the auditors. This way a good regulation will be maintained and
professionalism will be kept. Hence, in order to promote high standards, good practice and
remain impartial, the auditors need to have proper qualification as a characteristic of good
regulation. Lastly, regulation that meets the measures is bound to accomplish the necessary
results and to be worthy and believable to people in” general.

Finally, while “regulation helps to ensure the quality of services that professional accountants
such as auditors provide, it will also help auditors to do their job without any pressure and the
reports will be generated with less material misstatements. Eventually, it is the ability of
accountancy profession and government to have a common objective of ensuring that auditors
serve the public interest and meet high standards in the quality of the services they provide which
will earn the profession the respect of communities and regulators”.