The O'Brien Column - Hire accountants before they get too big for their boots

By Peter V O'Brien

Friday 23rd August 2002

Recent musings from Chartered Accountants Society members about accounting standards and auditors' responsibilities confirmed the need for professional bodies to meet the requirements of informed public opinion.

Accountants in New Zealand and elsewhere have consistently maintained they were bulwarks against corporate financial shenanigans.

Most of the apologetics came from the big international accounting firms who did audit work and consultancy for the same client.

They seemed to be protecting themselves after revelations about dicey procedures in the US involving Enron, WorldCom and other corporations and a public and regulatory backlash.

New Zealand-based members of those firms have tried to push the tide back.

The firms came under scrutiny from people who had knowledge of professional charges and did not accept the arguments about auditors' responsibilities.

Accountants share a problem with lawyers that is not seen in the medical profession, for example.

Medical doctors seem to charge fees based on a basic visit and "a rate for the job."

Legal and account rates are usually formulated around hourly fees, with a possible adjustment for complexity.

Their rates are not just calculated in hours.

Deal with any accountant or lawyer on an even remotely professional basis and you may find the consultation is charged out down to six-minute units, rarely less than $100 an hour for seniors and are scaled down for junior staff.

A profit margin is included in the client's cost.

Professionals could do better if they moved from hourly rates, which accumulate during the job's duration, to fixed quotes.

The client then knows the total cost.

Underestimation goes in the client's favour, overestimation is in the professional's favour.

Both sides know what happened when the time comes to settle the account.

The country's leading accountants should admit their profession is often seen as the home of conservative number-totters, some of whom might be stretched to balance their bank statements.

Life should be so sensible. The leading accountants are the problem.

Their constant reassurances that everything is healthy in the corporate and accountancy world become nonsense when people examine the facts of particular cases.

Investors notice matters that the leading accountants may like to disappear.

The big firms are under scrutiny, not the little ones. It was the big ones who reckoned they were the best and that may be so for massive corporates.

The giant firms would not deal with small people who were unable to pay for foyers that could accommodate 10 employees but are left as empty space, apart from housing a receptionist.

Small accountancy and law firms have blossomed as many in those professions grabbed the idea that big was beautiful.

Some employees, even partners, decided professional life had more to it than meeting computer-generated financial targets.

Strange, but understandable, situations arose when firms merged and/or people moved higher up their organisation's berry trees.

For example, I engaged a former fellow-student 30 years ago to handle modest legal affairs. Requirements in the mid-1980s saw my work delegated to a person who was promoted to junior partnership on the settlement day.

There is no sense in going back to that firm for anything small. The first solicitor now operates as senior counsel, company director and general big player on the New Zealand scene. The former junior partner now has his own practice at appropriate fees.

Go for the small firm if your business is modest, particularly those that show little desire to work from 7am to midnight.

They tend to share your individual values, as opposed to legal and accounting corporatism.

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