New accountancy bill amendments
With Finance and Economic Services Minister John Dalli
this week emphasising his call for accountants to be responsible for
company tax evasion, Julian Manduca speaks to two prominent auditor
partners - John Bonello and Paul Mercieca - about upcoming amendments
to the Accountancy Profession Act and auditors responsibilities
The Enron scandal and that of WorldCom have severely dented
the auditing profession world-wide and called for greater control over
In Malta the profession has enjoyed great esteem with the larger audit
firms representing international ones setting the pace.
In the earlier years the professionalism of the firms was somewhat undermined
by some rogue auditors often working on their own and offering
easy services for cheaper audit fees. The scandals that
hit the larger firms abroad, including some of the big five, has shown
that it is not only the smaller firms that are susceptible to dubious
In Malta the government felt the need to tighten control over accountancy
and audit firms and new amendments are being passed in Parliament to
reform the Accountancy Professions Act.
Minister John Dalli explained how the amendments aimed at giving greater
power to the Accountancy Board. He insisted that auditors had to be
responsible for the accounts they prepared.
Auditors' reports had to be trusted, Dalli said, "but one could
not accept accounts where it was obvious that there was tax evasion,
or showing expenses not related to the VAT returns of the individual."
"When found out, the accountants would be responsible for all the
evasion that would have taken place. The responsibility of accountants
was to act according to the standards the people expected of them, the
standards of competence, discipline and trust." However, nothing
in the new amendments adds to the auditors responsibility as far as
tax evasion is concerned.
The Malta Financial and Business Times spoke to John Bonello and Paul
Mercieca, two prominent auditor partners about the amendments and auditors
Paul Mercieca, managing partner at Deloitte and Touche, said the new
amendments bring the original Act up to date: "Since the original
Act was introduced in 1979 the accountancy profession, both in Malta
and overseas, has seen a lot of change. The changes have come about
both as a result of developments in the way that business is conducted
and the demands for our services from our clients."
"I think that the amendments that are being proposed go a long
way in addressing these developments particularly in strengthening our
ability to provide the range of services that our clients expect of
"For example, in practical terms one of the ways that this is being
achieved is by allowing non-accountants to become partners in accounting
firms. As a result of this particular amendment firms will be able to
retain and attract top quality persons from other professions by offering
the prospect of partnership."
Bonello, senior partner at PricewaterhouseCoopers echoed, Mercieca and
said: "The law does away with the segregation between the CPA and
CPAA warrants which has served as a disincentive for youngsters looking
to enter into essential professional areas such as tax and financial
advisory services, as the only route to a partnership was via audit.
"It introduces instead the concept of a separate practising warrant
for those partners or sole practitioners wishing to act as auditors.
"The amendments open a door, under a number of constraints and
public interest safeguards, for specialised non-accountants to join
accounting partnerships, ensuring that the profession can always engage
the best in any particular fields. There are, today, core elements of
our work, such as IT audit, where this is needed."
Bonello believes all the amendments in the law are "all positive"
and added: "The new law will combine and strengthen the disciplinary
proceedings of the Accountancy Board and the Malta Institute of Accountants,
doing away with the duplication which exists today and the danger of
inconsistent findings which would undermine and weaken both institutions.
"Finally, the amendments improve the framework under which the
Accountancy Board and the Institute could work together on new initiatives,
such as mandatory quality assurance."
Mercieca too welcomed the strengthening of the Accountancy Board which
"is being given more independence from government and a stronger
role in the regulation of the profession in the public interest. This
should undoubtedly enhance the credibility of the profession."
Asked about rogue auditors, Mercieca had this to say: "As in all
professions there will always unfortunately be those persons who may
not apply the proper standards or who do not conduct themselves, as
"I dont think that our profession has a particular problem
in this regard. I can definitely say, however, that there has been a
marked improvement over the past few years with professional standards
having improved considerably.
"This has been achieved not only as a result of the influence of
the international firms which we are members of, or whom we represent,
but also by the efforts of The Malta Institute Of Accountants and its
members who have generally recognised the importance of consistently
applying high professional standards."
Bonello singled out large competing firms as being more of a problem
than smaller ones: "Ironically, in practice, the undercutting we
come across is from firms of comparable size to ours which, I am sure,
invest similar resources in ensuring the quality of their work. It would
be unfair and inaccurate to say that we are being undercut by small
firms or sole practitioners - certainly in the case of our firm. I think
that it is the larger firms that have tended to compete in a manner
that does not make commercial sense. But if that is the way of the free
market and so be it."
Plans are in hand to ensure that auditors achieve high standards and
Mercieca said: "One of the measures being introduced to combat
sloppy or inadequate work is a system of quality assurance review, which
will involve systematic independent reviews of auditors working
papers files and systems.
"This initiative is being supported by the Accountancy Board and
the Institute of Accountants and is expected to be implemented in the
very near future."
Mercieca does not believe rogue auditors face a rosy future: "I
think that those few accountants who continue to act unprofessionally
will soon find out for themselves that it is simply not worth doing
so for what may be short-term gains. The risks associated with an accountants
work have increased tremendously over the years and the best form of
protection is the deliverance of services, which are of the highest
professional standards without exception."
Asked what could be done to improve the quality of audit work Bonello
said: "in the past various initiatives were undertaken to address
the issue, but they did not get anywhere. These initiatives were based
on removing secrecy and other legal impediments such that interested
users of financial statements, such as the Inland Revenue, could report
accountants suspected of malpractice for investigation.
"All these initiatives however depended on such interested users
initiating a complaint, and these have very rarely been forthcoming.
"The profession has therefore moved on to new methods, including
mandatory quality control reviews which are held regularly under the
overall control of the regulator. Under such reviews all practitioners,
large and small, are subject to periodic reviews where a random sample
of their audit files are examined by an expert team to ensure their
work is being conducted in line with the international auditing standards
applicable also in Malta.
"Even where no complaints whatsoever are received. A system of
mandatory quality control reviews is applicable within the EU and will
have to be applied here as well. The matter is currently being worked
on by the Institute and the Accountancy Board, and a new regime should
be introduced sometime next year."
Most audit firms follow the code of ethics and independence rules inspired
by the International Federation of Accountants, and the Malta Financial
and Business Times asked Mercieca and Bonello, whether this was the
case at their firm and what could be done to ensure more audit firms
followed the code. Bonello said: "The rules in this code are incorporated
within the PricewaterhouseCoopers approach and would be followed in
all material respects as a matter of course. We have gone beyond that,
though, and we have published a Global Code of Conduct to which all
of us in PwC worldwide will adhere.
"Unfortunately, the local code of ethics has yet to be updated
to adopt recent changes to the IFAC Code, but there is some time left
as the new code will come into force in 2004.
"At present there is a task force, in which our firm actively participates,
which is updating the Maltese code to
reflect the latest IFAC guidance, together with the parallel requirements
drawn up the EU following the scandals which were recently encountered
principally in the USA complete new draft should be discussed by the
Accountancy Board quite soon, and the process will hopefully move on
quickly from that point."
"The current IFAC draft differs from earlier versions in a key
respect, in that it represents a mandatory standard rather than a set
of recommendations of best practice. I hope that this change will be
embraced locally as well, thus ensuring that the quality control measures
discussed above will also cover practitioners' compliance with the new
Mercieca said: "Deloittes independence policy is based on
the fundamental principle that the firm, its partners and professional
staff should in fact be, and should appear to be, independent of any
entity for which it performs audit or other attest services.
"We are obliged through our membership in Deloitte & Touche
to apply the highest possible independence and ethical standards. These
standards are in fact based upon the International Federation of Accountants
Code of Ethics for professional accountants.
"As a result of the corporate governance and audit failures witnessed
overseas in the recent past the EU has issued new rules on auditors
independence and ethics aimed at strengthening auditor independence.
"These new rules together with the IFAC code are currently being
reviewed by The Malta Institute of Accountants which is expected to
shortly put forward proposals to the Accountancy Board for the adoption
of a new Code of Ethics which will embrace the EU rules and IFAC code
and be mandatory on all warrant holders."