The Press is being very careful at present to ensure that we all see very clearly how valuable its investigative and reporting activities are. They have a point, because if current proposals are adopted, it will be impossible for a newspaper to defend itself in court, so all we will ever read in a newspaper is how lovely everything is. Dictators and despots may approve, but no-one in their right mind would make a person who wins a defamation case pay the costs of the loser.
The Press is not a body of angels. They sometimes manipulate, and behave very badly, for sure, and Self-Regulation is important. The Press also needs to understand that they have been the key architects of the destruction of every other profession, having drawn the public into a belief that government regulation is a good thing. Some may say they have it coming, but that would be short sighted. I would not wish to see them hoist with their petard, as their freedom is too important.
Most professions are already regulated directly or indirectly by government. The results have not been glorious. I thought I might illustrate the point by considering how regulation of the accounting profession has achieved its objectives. Perhaps we can learn something. This is a potted history based more on personal recollection than detailed historical study. The events I describe are therefore seen from my perspective and others may well interpret them differently.
Regulation of accountancy came to the fore around 1975 with “The Corporate Report”, a massively important piece of academic research that concluded many things, not least that:
- accounts of companies were (at the time) inconsistent year on year, and from one company to another;
- few users of accounts had a proper understanding of their meaning.
Its authors considered who used financial reports and why, and proposed that a more formalised framework was needed. The profession, fearing government intervention and determined to maintain its high standards, started to regulate itself by setting standard accounting practices and principles. Professional committees produced a body of accounting rules called Statements of Standard Accounting Practice (“SSAP”). Understanding improved and there was greater consistency and comparability between company reports.
However, regulation begets regulation, and the lines between professional judgement and government policy can become blurred. Just as doctors and dentists are restricted in deciding what they do for patients but must follow rules determined by government regulators (“NICE”, for example), so government policy moved in on accountancy. It was politically necessary to harmonise our accounting practice with the EU. A series of major corporate failures during the 1980’s (DeLorean, BCCS and Polly Peck come to mind, but there were others) were blamed on accountants. Sensationalist and often ill-informed media reporting created a misconception that an audit report was a total “clean bill of health”.
Rather than clarify this expectations gap, the profession self-flagellated, and Government seized the opportunity to gradually introduce its own regulations. In 1981 a benign Companies Act, the first since 1948, introduced an accounting framework with standardised formats for accounts. In 1985, Company Law was consolidated into a single Act, and in 1989 for the first time, Accounting Standards carried the full force of statute – it was now the law that accounts should comply with Accounting Standards.
It seemed that, sitting in sack-cloth and ashes and seeking to rebuild trust, the profession worked with government to create a new regulatory framework: Financial Reporting Standards. These were supposed to be better, somehow, than what had gone before, and more relevant to the new transactions of the late 20th century. They also moved us, sometimes, closer to international standards.
The question that many asked was, would a set of accounts give a true and fair view because they comply with Standards, or as well as complying? Others were less kind. Did this now mean that previous accounts under the old Standards did not give a true and fair view? It did not matter because the Regulators became stronger too and non-compliance was not an option.
The legislative framework marched on. Companies could be small, medium or large, listed or unlisted, and that may determine the accounting rules followed, with a new, cut-down set of standards for small companies (Financial Reporting Standard for Smaller Entities), if they preferred it. Many companies could choose between Financial Reporting Standards and International Financial Reporting Standards (“IFRS”) (which are completely different).
Then, in the last couple of years, the wholly new Standard (“FRS102”) replaced all the old FRS’s and SSAP’s, but not IFRS, with a further choice for some of “IFRS-Light”. Oh.. and then there are accounts for Micro-Entities (FRS105).
Confused? You cannot be confused, surely? Regulation is there to remove confusion.
The main objectives (as above) of Regulation were to ensure there is a framework for accounting that is intelligible, universally understood, and comparable both between companies and over time. The resultant accounting standards may well be academically wonderful, but it is hard to tell because they are written with such a degree of jargon as to render them unintelligible to anyone outside of the profession (and to many in it). Comparison over time or between entities has become nearly impossible. But Regulation has achieved a different consistency: that between government policy and accounting policies.
Milton said we should beware something “fair seeming good” (Paradise Lost). We must keep government away from regulating the Press.