CA ANZ defends inclusion of non-accountant ‘affiliate’ members in PSS

Later this year, KPMG whistleblower Brendan Lyon will put this to the test in his upcoming NSW Supreme Court case against CA ANZ and the Professional Standards Council (PSC), regarding the inclusion of non-accountants in the accounting PSS.

Under Australia’s Professional Standards Act, the PSC approves standards schemes that enable included professions to cap legal liability if they promise to meet high ethical standards. CA ANZ administers its approved PSS for its members under this framework.

Its scheme includes members in public practice that provide ‘Category 1’ services, including audit and review, ‘Category 2’ services, including liquidation and external administration, and ‘Category 3’ services, which include accounting-related services, including tax advice and management consulting.

Lyon’s case centres around the third category, which he said has enabled non-accountants to receive legal protections intended for accountants.

“The inclusion and protection of anyone who's not a chartered accountant and the provision of any service that's not accounting within a professional scheme that is legitimised on the basis of the professional discipline and standards of the accounting profession is clearly ludicrous,” Lyon told Accountants Daily.

During the 20 March hearing, Senator Pocock asked CA ANZ directly about Lyon’s case, questioning how the industry body was funding its defence and how it had communicated this with its members.

“Like all litigation matters or conduct related matters involving lawyers, we fund those out of our operating expenses,” CA ANZ CEO Ainslie van Onselen replied.

“I believe that we issued a membership-wide either email or reference statement on our public website, probably both, in relation to that matter—that we were defending the matter.”

Pocock also asked CA ANZ whether its professional standards scheme included individuals who were not qualified as accountants.

“In practice, does your organisation accept the Accounting Scheme in fact provides firm-wide limited liability to Big Four and similar multidisciplinary partnerships, regardless of whether individual partners are qualified and regardless of the type of service they provide?” she asked.

In response, CA ANZ confirmed that its definition of public accountancy services included accountancy and “related skills,” such as management consulting and corporate advisory services.

It added that “affiliate members” were required to adhere to a number of admission criteria, and those admitted since July 2019 were also required to complete CA ANZ’s affiliate membership admission program.

“Affiliate members are principals in a Chartered Accounting practice that do not hold the designation of Chartered Accountant but who do meet the criteria for admission as an Affiliate,” the industry body said.

To meet the criteria, affiliates must:

• Hold a degree equivalent to an Australian Bachelor’s degree or higher, or otherwise be of significant professional standing.
• Have at least five years of full-time postgraduate experience in accountancy or a related area of expertise.
• Complete the Affiliate Admission Program and the Public Practice Program.
• Agree to CA ANZ’s standards of practice and professional conduct.
• Demonstrate a satisfactory understanding of the ethical and public practice requirements of CA ANZ and the Public Practice Program.
• Agree to be bound by the CA ANZ royal charter, by-laws, and regulations.

It added that CA ANZ currently had 2,261 affiliate members Australia-wide, which it noted was “less than 2 per cent” of its 140,000-member base.

The industry body reiterated that affiliate members worked across all firm sizes and argued that their inclusion in the PSS improved standards and consumer protections.

“Affiliates work across firms of all sizes, not only ‘Big Four’ firms. Including them in our scheme holds more professionals to a higher standard and protects more consumers who may need access to compensation through mandatory professional indemnity insurance,” it said.

However, with his case, Lyon said the inclusion of ‘Category 3’ services in the scheme had diminished accountability amongst large, multi-disciplinary firms.

Under the expanded scheme, consultants working for big four accounting firms were given legal liability caps of up to $20 million, meaning clients could sue for no more than $20 million in damages. After insurance, Lyon estimated that most firms would foot a $1 million bill, or $1,000 per partner for a 1,000-partner firm.

“It's an incredibly powerful protection. It dissuades people from bringing cases where there are large damages because the returns are meagre and the costs are high and it removes the incentive,” he said.

Outside of his case, Lyon added that he hoped to see broader changes in the regulation of large accounting firms.

“If successful, my legal case will fix one perverse incentive affecting the Big Four.”

“But broader changes are needed including bringing the Big Four within corporations law and repairing Australia’s broken system of accounting self‑regulation.”