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Australia Plays Accountants Anonymous

How Australia is being drawn into the global deregulation of services that has triggered a legal and ethical crisis in the US.

Australia Plays Accountants Anonymous

By Alan Griffiths

The need for separation between auditing and management consulting functions is now accepted as vital to the proper functioning of capitalism. The push to deregulate accountancy services has been exposed as dangerously wrong-headed, and the pressure is on to re-regulate many aspects of accounting.

Will global capitalism be subject to the same disciplines? It is revealing that the push to re-regulate occurred only because the effect was felt in United States capital markets. The blurring of accounting regulatory boundaries began in global forums, and the flaws probably would not have been exposed had they not had a big effect on the US economy.

Arthur Andersen, the discredited US accounting firm associated with high-profile corporate collapses such as Enron, has deeply influenced the world’s most powerful trade agreement - the World Trade Organisation’s General Agreement on Trade in Services (GATS).

The GATS accounting agreement could prevent governments re-regulating in the interests of shareholders and allow firms a legally binding mechanism to continue delivering in-house accountancy and management consultancy services.

In 1995, Australia signed onto GATS, and the WTO Working Party on Professional Services (WPPS) was instigated to liberalise almost all professional services. As accountancy is the most globalised service, and Andersen one of its main providers, managing partner Robert Kelly claimed that the firm was responsible for accountancy being targeted first . [1]

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The forces that shaped liberalisation of accountancy all had a stake in its establishment. Prominent were the Big Five: Arthur Andersen, Deloitte Touche Tohmatsu, Ernst & Young, PricewaterhouseCoopers, and KPMG Consulting.

Between them they earned $US59.5 billion in 1999 alone. [2] A sizeable percentage of these earnings came from the very types of in-house accountancy and consultancy services that are now frowned upon. At the height of their influence the Big Five audited nearly all of the U.S. based Fortune 500 companies, and a large percentage of the next 500 [3].

The Big 5’s challenge to maintain their dominance lay in overcoming barriers to cross-border trade in accounting and management-consulting services. The answer came by way of GATS, a legally binding agreement that could literally open up the rest of the world to their type of accountancy practises. And what better way to go about it than being involved in its implementation?

WPPS chose to pursue the “harmonisation” (watering down) of accountancy standards and the targeting of “protectionist” domestic regulation “disguised” as consumer protection.

It set about collecting data from questionnaires sent to accountancy firms in the developed and developing countries of the world and additional material from the OECD, UNCTAD and the International Federation of Accountants (IFAC). Given the dangers involved in offering an open shopping list to the thousands of affiliates dominated by the Big Five, it is remarkable that only 29 questionnaires were returned.

The many concerns listed included requirements of managers to be locally qualified and licensed, government procurement, overseas ownership of firms and the requirement for aptitude tests regarding national law.[4]

First, the WPPS developed a set of guidelines for negotiating “mutual recognition agreements” between countries. These evolved into “multilateral accounting disciplines”, which the WTO adopted in 1998 [5]. These disciplines - to be negotiated further before completion in 2005 - will establish an International Standards document on Auditing. In the meantime, WTO members are locked in to a “standstill” clause forbidding them from further regulating accountancy services [6].

By 2002, the world had woken up to Andersen’s folly. Its in-house consultancies led to a string of huge corporate collapses. In January, Dorsey Baskin junior, managing director of Andersen’s professional standards group, was brought before the U.S. Congress.

Baskin was asked whether he saw it as a conflict of interest to provide consulting and auditing services at the same time. He replied: “I do not believe that this is inherently an ethical problem for auditors.”[7]

Had the world been alerted to Andersen’s involvement in the WTO, and the threat to share holder accountability, Baskin would have had a lot more explaining to do.

Before Andersen imploded, it had one more thing to do. Two months after Baskin’s moment of truth, Andersen sent a letter to the peak EU accountancy body, the European Federation of Accountants, praising its stance on complying with the Internationals Standards on Auditing by 2005 [8].

The letter stressed that the convergence of national and international auditing standards requires substantial cooperation between governments and the auditing profession. And whom could they contact for further details? Baskin.


The EU and US have promised to reward Australia by accepting agricultural products, if Australia commits fully to the GATS. But given that 80% of the Australian work force is employed in services, agriculture is not the main game in town.

While Trade Minister Mark Vaille, talks about transparency, his Department of Foreign Affairs and Trade continues negotiating the GATS. No one knows what Vaille is signing away. State and Local governments are not privy to the negotiations but will be bound by the results.

Meanwhile, due to public pressure, the Canadian Government opened the negotiation process to public perusal. And held an open inquiry into its relationship with the WTO. It acknowledged and debated GATS in Parliament and published negotiating details on the web. Australia has done the opposite.

By June this year, Vaille completed a secret list of exemptions covering Australian services he proposed to protect from GATS.

Given that GATS has expanded to include the liberalisation of all government run services, like health, education, water and other regulatory powers, a great deal is at stake.


All professional and public services are entitled to a temporary exemption from GATS, but applications close in March 2003, after which a standstill clause comes into effect, so no future governments can apply for new exemptions.

The Australian Labour Party and Coalition endorse GATS. The Democrats chose not to campaign against it. However, the Australian Greens are actively opposing it.

Barrister Brian Walters, SC, says: “Over many years, the Australian community has developed standards in the service professions. These standards protect not only those directly involved, but also the wider community.

Creditors and shareholders of corporations can be badly injured if accountants do not perform their duties properly. Lawyers have duties not just to those who pay them.

Doctors have a duty to patients that is not merely governed by an economic relationship. To undermine those standards in order to assist the trade of large corporations is to risk grave damage to the fabric of our society.” [9]

1. We must fight the Enron virus, Murray Dobbin, p A19, Globe and Mail, February 7, 2002
2. Ibid
3. Reducing the Barriers to International Trade in Accounting Services, by Lawrence J. White, p27, The AEI Press, Washington DC, 2001
4. Ibid
5. Decision on Disciplines Relating to the Accountancy Sector, Council for Trade in Services on 14 December 1998, World Trade Organisation
6. Reducing the Barriers to International Trade in Accounting Services, by Lawrence J. White, p18, The AEI Press, Washington DC, 2001
7. Destruction of Enron Related Documents, Committee on Energy and Commerce, Serial No. 107-80, p151, January 24, 2002, U.S. Government Printing Office, Washington 2002
9. GATS, Brian Walters SC, email correspondence, Melbourne 27th August 2002

- This article was also published in BRW Media’s, Management Today, November/December 2002, page 8

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