This article was in Accountancy Age on 29 May 2019:
“I think at the moment what I’m saying is unusual,” said Richard Murphy as he reflected on his plans for the accounting industry. He believes that no one is currently asking the big questions about accountancy: what is its purpose? Who does it serve? How will climate change effect accountants?
Murphy is a chartered accountant, political economist and Professor of Practice in International Political Economy at City University, London. Unsurprisingly for someone with so many strings on his bow, he gives the impression of someone who’s always been ahead of the curve. Indeed, while Alexandria Ocasio-Cortez is now blazing a trail across America with her plans for a Green New Deal, she was just a teenager when Murphy co-authored the first Green New Deal in 2008.
Murphy has just launched the Corporate Accountability Network, a new initiative that aims to be the first NGO which specifically targets the weaknesses in the accounting disclosure of all companies.
The aim is to ensure that the accounts of all companies are prepared for the benefit of all its stakeholders, which includes in their view: suppliers of capital, trading partners, employees, regulators, tax authorities and civil society. In essence, he wants to reconceptualise accountancy as a more transparent industry which has a duty to the public, not just the shareholders of a company.
“Accountancy has been corrupted”
So, what has gone wrong in the industry?
“I think that accountancy has been corrupted in many ways. We were, as a profession, created with a public interest duty. That is why the professional bodies exist, to serve the public interest and that has been forgotten. The firms have acted in their own interests, they’ve acted in the interests of their clients and they haven’t acted in the interests of society at large,” said Murphy.
“We’ve stopped accounting for more than 90% of firms in the UK, the small companies don’t put meaningful accounts on public record and yet we as a profession who are dedicated to accounting say that’s alright. I find that quite astonishing because it isn’t alright.
“We grant those companies the privilege of limited liability, they don’t have to pay the debts of those companies, if those companies go bust. That confers on them an enormous privilege and advantage and yet we don’t ask them to account for that enormous privilege which imposes a cost on everybody else (if it goes bust) by putting their accounts on public record,” he added.
Recent scandals like Carillion, Patisserie Valerie and the almost weekly fining of the Big Four make it hard to argue that Murphy does not at least have a point. But he claims that the problem goes beyond just audit. IFRS accounts are “fundamentally flawed” Murphy said, as they only meet the needs of the suppliers of capital.
“It’s a tiny proportion of people who are actually suppliers of capital, who are actually deciding “do I want to engage with it, make a loan to it, or buy its shares or not?
“There will be millions of other people who are employees, who are suppliers, who are customers, all of whom could be impacted by the well-being of that company. Just look at how many people are impacted. Look at Jamie Oliver and think how many people potentially lost their jobs,” said Murphy.
Lack of information
The problem as Murphy sees it, is that those who are impacted by businesses don’t get the information on them that they require.
“Do the regulators have the information they need, do IFRS accounts for example, supply the information that banking regulators require? No, I can tell you they don’t. Do these accounts meet the needs of tax authorities? No, they don’t,” he said.
In the seventies, it was recognised that accountants had an obligation to produce accounts for all those who had an interest in a company, not merely the shareholders. But Murphy believes that those standards have fallen since he qualified as an accountant in 1982, and the profession took Thatcher’s famous “no such thing as society” line too much to heart, seduced by her neo-liberal transformation of Britain where profit was valued above all else.
“My argument is what in 1975 accountancy recognised as its duty is now considered to be rather quaint and weird, but in fact remains its duty and it’s the profession that has got things wrong in the meantime,” he said.
Murphy is adamant this is not a Corbyn-esque lament to the past, but a new vision for the future that can manage the existential threats which accountancy faces.
“We need to think ‘what is accounting for in the 21st century?’ if we are to be relevant to society and are going to continue to enjoy the privileges that we have and make the money we have. Because let’s be blunt, AI is the biggest threat to accountancy there is.
“We have undermined our own value and unsurprisingly people are unconvinced by the merits and value of accountants anymore,” he warned.
“I’m not anti-business, I’m horribly pro-business, I’m not anti-accountant, I’m horribly pro-accountant. But I think we’ve forgotten our duty to business, to communities and to each other as accountants and that we need to restore our faith in the need for good accounting. Because we have run away from it,” Murphy said
The left-wing tag clearly frustrates Murphy, particularly as he believes his campaign is merely for basic economic literacy.
“If you go back to economic theory, it says markets can only function if they have information to make decisions with. Since the 1980’s, we have denied that information for markets to make decisions with,” he said. “It’s economically illiterate what we’ve done, and it reflects the prioritisation of self-interest over the interest of business at large who are essential to making profit.”
“This is nothing anti-business. This is about restoring our standing in society and making sure business can work to best effect.”
Climate change and beyond
In a further sign of Murphy’s ahead-of-the-curve thinking, the Corporate Accountability Network has plans to make accounting fit for purpose in the age of climate change, to deal with accounts that will be constrained by things such as zero carbon emissions regulations. He also wants to turn the directors report into a marketing exercise similar to rebranding a website.
Yet Murphy is reluctant to gauge his odds of success. Indeed, it seems his biggest challenge will be changing the attitude of his fellow accountants.
“I think most accountants get a set of rules and use them. I don’t think most of them ask why those rules exist and quite imagine that they can do much about them. If the rules say you will do this then you get a checklist to say you’ve done it. I don’t think most accountants are actually saying ‘how do I change this?’ and I think that is a danger.
“This question that I’m raising, is a deep existential question about accounting. And I don’t think most accountants ask deep existential questions of their work,” he said.
“But I hope they will!”