Institute of Chartered Accountants in Australia and New Zealand Institute of Chartered Accountants

Transcription

1 LEADENHALL corporate advisory Institute of Chartered Accountants in Australia and New Zealand Institute of Chartered Accountants Proposed Amalgamation

2 LEADENHALL corporate advisory The Members The Institute of Chartered Accountants in Australia The Members The Dear Members, for the Institute of Chartered Accountants in Australia and the 1. Introduction The Board Members of the Institute of Chartered Accountants in Australia ( ICAA ) and the Board Members of the ( NZICA ) have engaged Leadenhall Corporate Advisory Pty Ltd ( Leadenhall ) to prepare an ( IER ), setting out whether, in Leadenhall s opinion, the proposed amalgamation of the two institutes to form a New Institute ( Proposal ) is in the best interest of the members of ICAA and separately, whether it is in the best interest of the members of NZICA. 2. Purpose of the Report There is no legal or regulatory requirement for an IER in relation to the Proposal. However, as the Proposal would be a very significant event for both institutes and their members, the respective boards have resolved that their members should be provided with an IER to assist them in their consideration of the Proposal. The Boards of ICAA and NZICA have therefore engaged Leadenhall to prepare an IER providing an opinion: whether the Proposal is in the best interest of members of ICAA; and separately whether the Proposal is in the best interest of members of NZICA. This report has been prepared as a joint report addressed to both sets of members. A concise version of this report is to accompany the explanatory memorandum to be sent to members of ICAA and NZICA ( Explanatory Memorandum ). 3. Basis of Evaluation We have defined the Proposal as being in the best interest of members if the advantages of the transaction outweigh the disadvantages. Note: All amounts in New Zealand dollars have been translated at NZ$1.00 = A$0.86.

3 4. Conclusion for Members of ICAA Advantages The main advantages of the Proposal to members of ICAA are: Greater resources to invest in serving members ICAA has identified a number of areas in which it could better serve its members needs. The New Institute would have significantly more members than ICAA alone, providing greater scale for investment in key initiatives such as training, marketing, thought leadership, networking and services. Achieves scale without lowering standards the Proposal is expected to provide increased benefits for members, largely as a result of a significant increase in scale compared with ICAA. The educational, ethical and professional standards for NZICA are similar to those of ICAA, as demonstrated by its membership of the Global Accounting Alliance. Thus the Proposal allows ICAA members to benefit from additional scale without dilution of the CA brand. It therefore protects the pre-eminence of the CA brand which is highly valued by members. Cost savings the Proposal is expected to deliver substantial cost savings that would benefit members of both institutes. The anticipated cost savings are A$15.8 million per annum, representing 12% of the combined total expenses for the year to 30 June The cost savings would allow the New Institute to invest in initiatives to serve members or to minimise members fee increases in the future. Catalyst for change and improvement if approved, the Proposal would be a significant event for ICAA and NZICA. This would provide a catalyst for change and revitalisation, with the New Institute s management questioning all of the activities each of the institutes currently undertakes. This would allow the New Institute to focus on providing the services members need and how best to provide them. Reduced fees if the Proposal is approved, most ICAA members would enjoy reduced annual fees. In particular, there would be a 19% reduction in annual fees for full members of ICAA. Greater influence having greater scale, in particular with a significant increase in member numbers compared with ICAA, should provide the New Institute with greater influence when making representations and in negotiations with third parties such as governments, accounting standards setters and providers of goods and services to members. Disadvantages The main disadvantages of the Proposal to members of ICAA are: Integration risk integrating two organisations the size of ICAA and NZICA is not a simple or straightforward process. There are short term and long term risks related to the integration. In the immediate term, it is essential ICAA and NZICA can retain the key employees needed both to serve members and to implement the merger if it is approved. We understand that key employees of both institutes have been identified and a plan developed to retain as many of these key people as possible. Reduction in net assets per ICAA member due to ICAA having a significantly higher level of net assets per member than NZICA, the net assets per member of the New Institute would be significantly lower than for ICAA alone. This is a minor disadvantage to ICAA members, because members do not have direct access to the underlying net assets of the institute. Merger costs the estimated cost of the Proposal is A$17.9 million. Of this, A$8.8 million will have been incurred up to the date of the vote and is thus a sunk cost. The future cost of approving the Proposal is therefore A$9.1 million. The expected payback is less than one year, based on identified annual cost savings of A$15.8 million per year and so this is a minor disadvantage. Page 3 of 65

4 Increased bureaucracy in some regards, ICAA and NZICA are considered to be bureaucracies. The New Institute would clearly be larger than ICAA (or NZICA) and thus there is a perceived risk of increasing bureaucracy and red tape. We note that this possibility is not specific to the Proposal and that an increase in bureaucracy could arise even if ICAA remains independent. Opinion for Members of ICAA In our opinion the advantages of the Proposal to ICAA members outweigh the disadvantages; therefore, the Proposal is in the best interest of the members of ICAA. This opinion should be read in conjunction with our detailed report accompanying this letter which sets out our scope, analysis and findings in more detail. 5. Conclusion for Members of NZICA Advantages The main advantages of the Proposal to members of NZICA are: Greater resources to invest in serving members NZICA has identified a number of areas in which it could better serve its members needs. The New Institute would have significantly more members than NZICA alone, providing greater scale for investment in key initiatives such as training, marketing, thought leadership, networking and services. Achieves scale without lowering standards the Proposal is expected to provide increased benefits for members, largely as a result of a significant increase in scale compared with NZICA. The educational, ethical and professional standards for ICAA are similar to those of NZICA, as demonstrated by its membership of the Global Accounting Alliance. Thus the Proposal allows NZICA members to benefit from additional scale without dilution of the CA brand. It therefore protects the pre-eminence of the CA brand which is highly valued by members. Cost savings the Proposal is expected to deliver substantial cost savings that would benefit members of both institutes. The anticipated cost savings are A$15.8 million per annum, representing 12% of the combined total expenses for the year to 30 June The cost savings would allow the New Institute to invest in initiatives to serve members or to minimise members fee increases in the future. Increase in net assets per NZICA member due to ICAA having a significantly higher level of net assets per member than NZICA, the net assets per member of the New Institute would be significantly higher than for NZICA alone. While members do not have direct access to the underlying net assets of the institute, current NZICA members may benefit from the improved balance sheet strength and any investments made by the New Institute to the benefit of all members. Catalyst for change and improvement if approved, the Proposal would be a significant event for ICAA and NZICA. This would provide a catalyst for change and revitalisation, with the New Institute s management questioning all of the activities each of the institutes currently undertakes. This would allow the New Institute to focus on providing the services members need and how best to provide them. Reduced fees if the Proposal is approved, most NZICA members would enjoy reduced annual fees. If the Proposal is not approved, it is likely that NZICA members annual fees would have to increase substantially, especially if NZICA was to pursue the strategic objectives of the New Institute on its own. Greater Influence having greater scale, in particular with a significant increase in member numbers compared with NZICA, should provide the New Institute with greater influence when making representations and in negotiations with third parties such as governments, accounting standards setters and providers of goods and services to members. Page 4 of 65

5 Disadvantages The main disadvantages of the Proposal to members of NZICA are: Integration risk integrating two organisations the size of ICAA and NZICA is not a simple or straightforward process. There are short term and long term risks related to the integration. In the immediate term, it is essential ICAA and NZICA can retain the key employees needed both to serve members and to implement the merger if it is approved. We understand that key employees of both institutes have been identified and a plan developed to retain as many of these key people as possible. Loss of control If the Proposal is approved, New Zealand based members would no longer have control of their institute, as they would be outnumbered by Australian members. However, it is important to note that any change to the New Institute would require a two-thirds majority to be passed, thus proposals that disadvantage New Zealand members could be blocked by a strong negative vote from New Zealand members (as New Zealand members would represent approximately one third of total New Institute members). Merger costs the estimated cost of the Proposal is A$17.9 million. Of this, A$8.8 million will have been incurred up to the date of the vote and is a sunk cost. The future cost of approving the Proposal is therefore A$9.1 million. The expected payback is less than one year, based on identified annual cost savings of A$15.8 million per year and so this is a minor disadvantage. Increased bureaucracy in some regards ICAA and NZICA are considered to be bureaucracies. The New Institute would clearly be larger than NZICA (or ICAA) and thus there is a perceived risk of increasing bureaucracy and red tape. We note that this possibility is not specific to the Proposal and that an increase in bureaucracy could arise even if NZICA remains independent. Opinion for Members of NZICA In our opinion the advantages of the Proposal to NZICA members outweigh the disadvantages; therefore, the Proposal is in the best interest of the members of NZICA. This opinion should be read in conjunction with our detailed report accompanying this letter which sets out our scope, analysis and findings in more detail. Yours faithfully Richard Norris Senior Adviser Tim Lebbon Director Page 5 of 65

6 Contents 1. Terms of the Proposal Scope of the Report Purpose of the Report Basis of Evaluation Individual Members Particular Circumstances Limitations and Reliance on Information Profile of the Global Accounting Industry Industry Overview Industry History Positioning of the Chartered Brand in the Industry Positioning of the Certified Brand in the Industry ACCA and the Trend of Globalisation Major Bodies Profile of ICAA Activities Governance History Members Admission to Chartered Accountant Mutual Recognition Agreements Member Services Leadership Competitive Position SWOT Analysis Financial Performance and Position Profile of NZICA Activities Governance History Members Admission to Chartered Accountant Mutual Recognition Agreements Member Services Leadership Competitive Position SWOT Analysis Financial Performance and Position Profile of the New Institute Proposed Activities Proposed Fees Management and Corporate Governance Structure Competitive Position Financial Information Evaluation for Members of ICAA Advantages Disadvantages Page 6 of 65

7 7.3. Other Changes Conclusion Evaluation for Members of NZICA Advantages Disadvantages Other Changes Conclusion Appendix 1: Glossary Appendix 2: Sources of Information Appendix 3: Qualifications, Declarations and Consents Page 7 of 65

8 1. Terms of the Proposal The Board of ICAA and the Board of NZICA have prepared a proposal to amalgamate ICAA and NZICA to create a trans-tasman Institute (referred to in this report as the New Institute ). The Proposal is to be sent to voting members of ICAA and voting members of NZICA for approval and is outlined in the Explanatory Memorandum. Pursuant to the Proposal, the New Institute would operate through a revised Royal Charter, By-Laws and the NZICA Act. A modified NZICA entity would remain, for regulation of New Zealand-resident members, with all other functions discharged by the New Institute. Should members approve the Proposal, and the amending legislation be passed, members of ICAA and members of NZICA would become members of the New Institute. The existing and proposed structures of ICAA, NZICA and the New Institute are outlined below. Figure 1: Impact of Proposal on structure Before Proposal After Proposal New Zealand Chartered Accountants Australian Chartered Accountants New Zealand Chartered Accountants Australian Chartered Accountants NZICA ICAA New Institute (ICAA renamed) NZICA (subsidiary) Source: Leadenhall analysis Note: Structures have been simplified. The proposed governance structure for the New Institute is different to that currently adopted by ICAA as described in Section 6.3 of this report and more fully in Section 6 of the Explanatory Memorandum. Page 8 of 65

9 2. Scope of the Report 2.1. Purpose of the Report There is no legal or regulatory requirement for an IER in relation to the Proposal. However, as the merger would be a very significant event for both institutes and their members, the respective boards have resolved that their members should be provided with an IER to assist them in their consideration of the Proposal. The Boards of ICAA and NZICA have therefore engaged Leadenhall to prepare an providing an opinion: whether the Proposal is in the best interest of members of ICAA; and separately whether the Proposal is in the best interest of members of NZICA. This report has been prepared as a joint report addressed to both sets of members. A concise version of this report is to accompany the Explanatory Memorandum to be sent to all members of both institutes Basis of Evaluation ICAA and NZICA have not defined the term best interest. However, guidance on what an independent expert should consider and how best interest should generally be defined is contained in Regulatory Guide 111: Content of expert reports ( RG111 ) issued by the Australian Securities and Investment Commission ( ASIC ). RG 111 provides guidance on s for many types of transactions but it does not specifically cover reports of this nature. This regulatory guide provides guidance in relation to Independent Expert s Reports prepared in relation to: takeover bids; schemes of arrangement; compulsory acquisitions or buy-outs; acquisitions approved by security holders under item 7 of s611; selective capital reductions; related party transactions; transactions with persons in a position of influence; demutualisations of financial institutions; and buy-backs. Most of the situations covered by RG 111 require the expert to assess whether a transaction is fair and reasonable, with fairness relating to value and reasonableness relating to other factors. However, in our assessment, issues of value are not relevant to the Proposal as members of ICAA and NZICA do not directly share in the surplus (profits), cash flows or net assets of the institutes. In this regard the Proposal is similar to a demutualisation. In relation to a demutualisation, RG 111 notes: In the absence of these factors, the issue of value may be of secondary importance (particularly in demutualisations). The expert should provide an opinion as to whether the advantages of the transaction outweigh the disadvantages. Independent Adviser s reports are required in various circumstances under the under New Zealand Takeovers code and the listing rules of NZX Limited. These reports are typically required to assess the merits of proposed transactions but the term merits is not defined. We have referred to the Takeovers Panel s Guidance Note on Independent Advisers and the Takeovers Code which provides guidance on matters to be considered by an independent adviser but it also does not provide a definition of the term merits. Page 9 of 65

10 We have therefore defined the Proposal as being in the best interest of members if the advantages of the transaction outweigh the disadvantages. In reaching this conclusion we have considered the following significant factors: the issues facing the institutes; the alternative options available and their likelihood of occurring; the financial situation and solvency of each institute; the synergy benefits, implementation costs and opportunity costs of the Proposal; the anticipated changes to fees, services and related matters; the respective levels of influence of Members before and after the Proposal on the body itself and other regulatory bodies and standard setters; and the effect of the proposal on members rights and obligations. We have also considered other advantages and disadvantages of the Proposal to members Individual Members Particular Circumstances We have evaluated the Proposal for members of each institute as a whole and have not considered its effect on the particular circumstances of individual members. Due to their personal circumstances, individual members may place a different emphasis on various aspects of the Proposal from the ones adopted in this report. Accordingly, individual members may reach different conclusions from ours on whether the Proposal is in their best interest Limitations and Reliance on Information Leadenhall s opinion is based on current economic, market and other conditions prevailing at the date of this report. Such conditions can change significantly over a relatively short period of time. Any such changes subsequent to the issue of this report could change our opinion. In preparing this report we have considered the information set out in Appendix 2. This report should be read in conjunction with the declarations outlined in Appendix 3. Page 10 of 65

11 3. Profile of the Global Accounting Industry 3.1. Industry Overview Accounting is widely considered to be the language of business, due to its role in the communication of business information to both internal and external stakeholders. A more formal definition of accounting is offered by the American Accounting Organisation as The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information. The information provided by the accounting function helps present a picture of the overall health of the business, and assists users in making an in-depth analysis of the business. Accounting information is pivotal in facilitating decision making for executives and management, shareholders and financial institutions. Without it, shareholders would not be able to make an informed decision regarding the value of an asset, banks would not have an understanding of the appropriate risk of the business and management and executives would not know when their operations were becoming unprofitable or which investment opportunities to consider. The presentation of accounting information is usually required to be prepared based on particular standards, set by standards-setting bodies, with the main globally recognised bodies being the International Accounting Standard Board ( IASB ), responsible for the development of the International Financial Reporting Standards ( IFRS ), and the United States Financial Accounting Standards Board, responsible for the development of the United States Generally Accepted Accounting Principles. While the two Boards have been working towards convergence of the standards, differences currently still exist between the two sets of accounting standards particularly in the areas of revenue recognition, financial instruments, leases and insurance. The convergence to universal accounting standards is becoming of increased importance as a result of globalisation, as it allows for greater comparability of financial information and facilitates international investment. Accounting positions are found in all business sectors and include a wide range of roles which are not just limited to the preparation and analysis of financial information. In addition to financial management, accountants hold positions in the strategic management of firms and are responsible for the implementation of strong internal controls, should the company be of a sufficient size. In public practice, accountants offer services such as tax, audit and advisory, with audit services typically accounting for approximately half the firm s revenue among the larger organisations. Due to companies and institutions requiring accountants during the good and the bad times, it is considered to be a relatively stable form of employment. The global accounting industry is highly fragmented and supported by many professional member bodies that have been established all over the world to meet the demands of the profession. There are currently more than 200 individual professional member bodies and numerous standards setting boards and accounting designations across the globe. Accountants are required to hold certain specified qualifications to undertake regulated functions. For example, the requirement of holding a Certificate of Public Practice or Public Practice Certificate in order to offer accounting services to the public in New Zealand. Accounting designations vary from jurisdiction to jurisdiction and within jurisdictions, such as Chartered Accountant, Certified Accountant, Certified Public Accountant, Public Accountant, Management Accountant, Certified Management Accountant, etc. with different standards of admission and experience required for each, often creating confusion amongst consumers of accounting services. The main professional member bodies of most jurisdictions fall under either the Chartered or Certified designation. The derivation and role of each is discussed further in Sections 3.3 and 3.4 below. The impact on the whole of society of accounting scandals such as Enron, WorldCom and AIG further enforces the crucial role of accounting. One of the paradoxes of the profession, however, is that accounting scandals generate more work for accountants due to the increases in regulation and this is a significant factor driving growth of the accounting industry. Page 11 of 65

12 3.2. Industry History Accounting is one of the oldest professions, as the need to record one s assets dates back to prehistoric times. The earliest accounting records date back to ancient Mesopotamia (3500 B.C.), when terms of transactions were carved into moist clay blocks as narratives and parties signed their names by impressing their respective signatures which were hung around their neck in the form of an engraved stone amulet. Although this form of accounting was an extremely simplified version of the double entry bookkeeping we are familiar with today, the problems encountered by the ancients with record keeping, control of ownership and verification of financial transactions were not entirely different to the present day. The Italians of the Renaissance in the earlier part of the 14 th century are widely recognised and acknowledged as the fathers of modern accounting, due to the introduction of double entry bookkeeping by an Italian Luca Pacioli. In 1494, Pacioli outlined the Memorandum, Journal and Ledger, described in detail in his revolutionary book entitled Summa de Arithmetica, Geometria, Proportioni et Proportionalita, which translates to Everything about Arithmetic, Geometry and Proportion. Pacioli s idea of double entry was to list an entity's resources (assets) separately from any claims upon those resources by other entities (liabilities). This innovation made bookkeeping more efficient and provided a clearer picture of a company's overall strength. Basic bookkeeping methods have changed little since Pacioli. The prime differences between current bookkeeping practices and those applied by the Italians of the Renaissance are additions and refinements brought about by the needs of a larger scale of business operation and the introduction of more complex structures and instruments. The introduction of shareowners and bondholders in the industrial revolution created large classes of external capital providers who had a vital interest in companies performance and further increased the importance of the role of the accountant. During this time, accounting was transformed into a profession, with professional bodies established first in the United Kingdom (1854 in Scotland) and then in the United States. The growth in accounting is often attributed to increasing government regulations, the number of new businesses in the economic environment and increasingly complex financial situations. The creation of the Securities Exchange Commission in the United States in 1934, as a result of the Great Depression, introduced mandatory periodic filing of financial statements for companies which were required to be certified by members of the accounting profession. This further increased the demand for accountants and contributed to the growth of the profession. The Sarbanes-Oxley Act ( SOX ) was introduced in the United States in 2002, designed to address the public anger over accounting scandals such as Enron, Tyco, WorldCom and Global Crossing. The goal of SOX was to enhance transparency of financial information, reaffirm auditor independence and strengthen corporate governance. The Public Companies Accounting Oversight Board was established as a result, conducting annual inspections of audit firms for quality control. The additional work required of auditors to comply with SOX increased the demand for accountants and contributed to the further growth of the industry. The industry has experienced consolidation among the largest public accounting firms; moving from the Big Eight to the Big Six in 1989, to the Big Five in 1998, and then to the current Big Four in 2002, represented by PwC, EY, Deloitte and KPMG. The Big Four currently employ more than 690,000 staff cumulatively worldwide and achieved revenues of US$110.2 billion in the 2012 financial year. Table 1: 2012 Big Four Revenue and Number of Employees Revenue US$ bn Employees 1 Deloitte ,000 EY ,000 KPMG ,000 PwC ,000 Source: The 2012 Big Four Firm Performance Analysis January 2012 Note 1: Employee numbers have been rounded to the nearest thousand ,000 Page 12 of 65

13 In the absence of broader data, the growth of the industry is demonstrated through the significant growth in revenue achieved by the Big Four over the 2004 to 2012 period, as presented in Figure 2 below. The dip in revenue seen during the 2009 and 2010 financial years is attributable to the Global Financial Crisis ( GFC ). However, the profession has since recovered and is now generating revenue greater than pre GFC levels. The industry is anticipated to continue to grow, with the adoption of IFRS standards all over the world requiring assistance from auditors to effect implementation and compliance, and a recent focus on Corporate Social Responsibility and environmental reporting further creating work for the accounting function. Figure 2: Big Four historical revenue, US$ Billions Big Four Historical Revenue Deloi7e EY KPMG PwC Source: The 2012 Big Four Firm Performance Analysis January Positioning of the Chartered Brand in the Industry The term Chartered comes from the Royal Charter; a formal document issued by a monarch, granting a right or power to an individual or a body corporate. A Royal Charter was granted to the world s first professional bodies of accountants, being the Edinburgh Society of Accountants and the Glasgow Institute of Accountants and Actuaries, upon their establishment in The Aberdeen Society of Accountants was also granted a Royal Charter upon its inception in The Chartered Accountant ( CA ) title is an internationally recognised professional designation that is awarded to members who successfully complete a rigorous program including a university degree, an institute relevant Chartered Accountants Program and a practical experience component. Chartered Accountants are entrusted with substantial responsibility in society and have long been associated with pre-eminence in education and professional standards of accounting. A study performed by Interbrand in 2012 noted that 99 of the 100 Best Global Brands employ Chartered Accountants, which further highlights the recognition and respect of the designation globally. Chartered Accountants are required to undertake a minimum level of continuing professional development to retain the CA designation and stay professionally competitive. Chartered Accountants institutes facilitate special interest groups which are industry focused e.g. entertainment and media, or which are technically focused e.g. insolvency and restructuring. They also provide support to members by offering advisory services, technical helplines and libraries and offer opportunities for professional networking and career development. Chartered Accountants operate in over 180 countries and hold diverse roles such as CFO, CEO, forensic accountant, management consultant, auditor and business analyst. There are currently 27 Chartered Accountant member institutes around the world who use the CA post nominal designation. Of these bodies only four are established under a Royal Charter, with 20 of the bodies established through an act of parliament and three operating through standard company incorporation. As of April 2013 the Institute of Certified Public Accountants of Singapore changed its name to the Institute of Singapore Chartered Accountants, effectively replacing the CPA Singapore designation with CA. As a result of the name change, which arose from the Singaporean Accountancy Act, the Institute of Singapore Chartered Accountants now adheres to global Chartered Accountant standards for qualification requirements. Page 13 of 65

14 The chartered brand is currently represented by institutes in the following countries: Australia the Bahamas Bangladesh Barbados Belize Bermuda Canada the Eastern Caribbean England and Wales Ghana Guyana India Ireland Jamaica Namibia Nepal New Zealand Nigeria Pakistan Scotland Sierra Leone Singapore South Africa Sri Lanka Trinidad and Tobago Zambia Zimbabwe Figure 3: Countries representing Institutes of Chartered Accountants Source: Leadenhall analysis Recently, six chartered institutes have launched Chartered Accountants Worldwide ; an initiative to support, develop and promote the role that Chartered Accountants play throughout the global economy. The initiative brings together institutes of Chartered Accountants in Australia, England and Wales, Ireland, New Zealand, Scotland and South Africa and represents over 320,000 Chartered Accountants all over the world. Many of the chartered institutes have Mutual Recognition Agreements ( MRAs ) in place, thereby facilitating and increasing mobility for their members across the globe. MRAs are not limited to chartered institutes, with the Canadian Institute of Chartered Accountants, Instituto Mexicano De Contadores Publicos, the Institute of Chartered Accountants in Ireland, ICAA and NZICA all currently having MRAs with the American Institute of Certified Public Accountants ( AICPA ) and the National Association of State Boards of Accountancy ( NASBA ) Positioning of the Certified Brand in the Industry The Certified designation is composed of two unrelated arms: Certified Public Accountants and Certified Practising Accountants. Although both are referred to by the abbreviated CPA designation, they represent different bodies globally. This has been further complicated by the addition to the CPA acronym of the Canadian Chartered Professional Accountant. The rise of the CPA designation is complicated by the fact that although it is commonly used as the same single acronym, the level of education requirements and admission procedures for the designation varies across the globe. Although the CPA designation does not operate to common standards, the acronym is assuming a recognisable brand role and presumed common standards. Page 14 of 65

15 Certified Public Accountant The largest member body under the Certified designation is the AICPA, which is the national membership body for Certified Public Accountants in the United States and represents nearly 386,000 members in 128 countries. Certified Public Accountant is the statutory title of qualified accountants in the United States who have passed the Uniform Certified Public Accountant Examination. The examination is set by the AICPA and administered by NASBA. The minimum educational requirement to sit for the designation is a four year college degree or Masters degree; commonly referred to as the 150 Hour rule. Candidates across all states of the United States are administered the same Certified Public Accountant exam. However, the work experience component of the designation varies from state to state, with the majority of states requiring two years of audit or tax experience verified by a licensed Certified Public Accountant. Certified Public Accountants holding the designation from the AICPA must complete annual continuing professional education, typically a minimum of 40 hours per year, in order to retain the CPA designation. The AICPA has MRAs with the Canadian Institute of Chartered Accountants, Instituto Mexican de Contadores Publicos, ICAA, the Institute of Chartered Accountants Ireland, Hong Kong Institute of Chartered Accountants and NZICA. The other main institutes using the Certified Public Accountant designation are listed below: Institute of Certified Public Accountants in Israel Japanese Institute of Certified Public Accountants Institute of Certified Public Accountants of Greece Institute of Certified Public Accountants in Ireland Certified Practising Accountant Institute of Certified Public Accountants of Kenya Hong Kong Institute of Certified Public Accountants Institute of Certified Public Accountants of Cyprus Chinese Institute of Certified Public Accountants The Certified Practising Accountant designation is only offered by CPA Australia ( CPAA ). CPAA is one of the world's largest accounting bodies, with a membership of more than 144,000 professionals and students worldwide. CPAA was originally founded in 1886, under the name of Incorporated Institute of Accountants, Victoria, before changing its name to CPAA in The main predecessor bodies of CPAA include the Incorporated Institute of Accountants (Commonwealth Institute of Accountants), Federal Institute of Accountants, Association of Accountants of Australia and the Australian Institute of Cost Accountants. CPAA has its head office located in Melbourne, Victoria, as well as 11 branches throughout Australia. CPAA also has an international presence, with offices located in Hong Kong, Malaysia, Singapore, Europe, Indonesia, New Zealand and many others. CPAA has affiliations with a range of leading accounting bodies, increasing mobility as well as increasing access for members to a range of resources and benefits while working overseas. CPAA has MRAs with the following bodies: Canada Certified General Accountants Canada, Certified Management Accountants Canada; Europe Chartered Institute of Public Finance and Accountancy, Chartered Institute of Management Accountants, Institute of Certified Public Accountants in Ireland; Hong Kong Hong Kong Institute of Certified Public Accountants; India Institute of Chartered Accountants India; and Malaysia Malaysian Institute of Accountants. To become a member of CPAA, candidates are required to complete a program consisting of 14 educational segments as well as a fully integrated three year practical experience component. The educational component is comprised of a foundation level and a professional level. The completion of a related degree prior to the program, such as an accounting degree, often allows candidates to omit the foundation level and commence the program at the professional level. Page 15 of 65

16 3.5. ACCA and the Trend of Globalisation Whilst traditionally accounting member bodies have been country specific, in recent years there has been an increasing trend of bodies looking to attract a more global membership base, with the prime example being the Association of Chartered Certified Accountants ( ACCA ). The ACCA was originally established in 1904 as the London Association of Accountants, with an aim to provide more open access to the accountancy profession than the two accounting organisations that existed at the time, being the Chartered and Certified brands. It now has a presence in over 170 countries with 89 offices and centres across the world including the United Kingdom, Europe, North America, Australia, New Zealand, and Central and South America. Despite referencing both the Chartered and Certified designations in its title, the ACCA is not related to either organisation and is the global body for professional accountants offering the Chartered Certified Accountant qualification. The ACCA is considered by many to be less prestigious than the Chartered and Certified designations, primarily due to its acceptance of non-university degree candidates (in fact relevant degree subjects can give a candidate exemption from sections of the ACCA program) and the long time period over which candidates are able to take the course to obtain the ACCA qualification Major Bodies International Federation of Accountants The International Federation of Accountants ( IFAC ) was formed in October 1977 in Munich, Germany, at the 11 th World Congress of Accountants. It is made up of 167 member and associate member organisations from 129 countries and jurisdictions, and represents more than 2.5 million qualified accountants in a variety of sectors including public practice, academia, government service, industry and commerce. IFAC defines its mission as serving the public interest by: contributing to the development, adoption and implementation of high-quality international standards and guidance; contributing to the development of strong professional accountancy organisations and accounting firms, and to high-quality practices by professional accountants; promoting the value of professional accountants worldwide; and speaking out on public interest issues where the accountancy profession s expertise is most relevant. To implement the above, IFAC established a range of boards to develop, promote and enforce internationally recognised standards. They set minimum standards and requirements for all professional accounting bodies in order to provide a framework of quality assurance for the profession globally. Table 2: IFAC Independent Boards Boards International Assurance and Auditing Standards Board International Public Sector Accounting Standards Board International Accounting Education Standards Board International Ethics Standards Board for Accountants Role Sets the International Standards on Auditing, Assurance Engagements and Related Services and the International Standards on Quality Control. It also advises the IASB on issues surrounding the verifiability and auditability of proposed accounting standards. Develops International Public Sector Accounting Standards, guidance, and resources for use by public sector entities around the world for preparation of general purpose financial statements. Sets the International Education Standards through the development and enhancement of professional accountancy education, including knowledge, skills, values, ethics and attitudes. Sets the International Code of Ethics for Professional Accountants. Source: IFAC website Page 16 of 65

17 These groups are overseen by the Public Interest Oversight Board, also established by IFAC, to ensure that international auditing and assurance, ethics, and education standards for the accountancy profession are set in a transparent manner that reflects the public interest, and to increase the confidence of investors and others in the activities of IFAC. Members of IFAC include national accountancy organisations and international organisations that have an interest in the international accountancy profession, with examples of member bodies being ICAA, NZICA, CPAA, and the AICPA. A diagram representing the relative proportion of IFAC members by designation is provided below: Figure 4: IFAC Membership by Designation IFAC Membership by Designa=on CA, 19% CMA, 3% CPA, 46% Other, 26% CCA, 6% Source: IFAC membership data as at 2012 Note: Excludes student numbers and assumes all three Canadian designations unify under the CPA designation and Singapore is treated as CA designation following the April 2013 launch of the Singapore CA Program. 1 It should be noted in the above chart that the CPA designation is represented by Certified Public Accountants, Certified Practising Accountants and Chartered Professional Accountants, all of which are unrelated and do not operate to common standards. CMA and CCA relates to Certified Management Accountants and Chartered Certified Accountants respectively. Global Accounting Alliance The Global Accounting Alliance ( GAA ) was formed in November 2005, with a mission to promote quality services, share information and collaborate on important international issues in the accounting industry. The GAA represents more than 800,000 professionals and leaders worldwide, and is the collaboration of the world s leading accounting bodies in significant capital markets, with representatives from Australia, Canada, England and Wales, Germany, Hong Kong, Ireland, Japan, New Zealand, Scotland, South Africa and the United States. The GAA works closely with key regulators to deal with international issues through member-body collaboration, articulation of consensus views, and working in collaboration with other international bodies, most importantly IFAC. 1 The analysis presented in Figure 4 represents ICAA and NZICA s interpretation of information provided by IFAC. IFAC does not collect individual professional designations of its members and associates. Figures provided by IFAC are the representations reported by its members and associates and are not independently verified. Page 17 of 65

18 The GAA facilitates a co-operation between the following 11 leading professional accounting organisations: The American Institute of Certified Public Accountants (AICPA) Institute of Chartered Accountants in Ireland (ICAI) Canadian Institute of Chartered Accountants (CICA) Hong Kong Institute of Certified Public Accountants (HKICPA) Institute of Chartered Accountants in Australia (ICAA) Institute of Chartered Accountants in England and Wales (ICAEW) Institute of Chartered Accountants of Scotland (ICAS) Institute of Public Auditors in Germany, Incorporated Association (IDW) The Japanese Institute of Certified Public Accountants (JICPA) New Zealand Institute of Chartered Accountants (NZICA) South African Institute of Chartered Accountants (SAICA) Figure 5: GAA member bodies geographically Canada CICA United States AICPA Scotland Ireland ICAS ICAI Germany England & Wales IDW ICAEW Japan JICPA Hong Kong HKICPA South Africa SAICA Australia ICAA New Zealand NZICA Source: Leadenhall analysis One of the first accomplishments of the GAA was the implementation of the GAA Passport Program which provides support to international members of the GAA bodies through a range of reciprocal benefits. Under the GAA Passport Program, GAA institutes provide benefits such as access to restricted areas of the local institute s website, networking opportunities, training and development and publications at member rates to members of other institutes in the GAA while they are visiting and working in a GAA-represented country. Page 18 of 65

19 4. Profile of ICAA 4.1. Activities ICAA is the accounting body representing Chartered Accountants in Australia. It currently has approximately 61,000 members and 12,000 students throughout the world. ICAA has six offices across Australia, with its head office located in Sydney, New South Wales. As at 30 June 2013, the breakdown of ICAA members by sector of employment was as follows: Table 3: ICAA member by business segment Portion Business Segment 34% Commerce Members not working in public practice or for a government body. This segment includes members working in not-for-profits and education. 28% Practice Members working in public practice with firms offering accounting services to the public but who are not working with a Big Four accounting firm. 13% Other Members who have not provided any employment or business details (i.e. not currently in the workforce, are in short term contract employment or have not advised ICAA of their current working arrangements). 12% Overseas Members not currently living or working in Australia. Of the approximately 7,000 members overseas, 1,276 are working with Big Four firms. 10% Big Four Members working with any of the Big Four accounting firms in Australia. 3% Government Members working with any level of government or with a statutory authority. Source: ICAA ICAA defines its role as assisting to uphold financial integrity in society and being at the forefront of ensuring ethical business practice. It is also a founding member, and the only Australian member organisation, of both the GAA and Chartered Accountants Worldwide. ICAA facilitates special interest groups which provide members with the opportunity to share knowledge and meet to discuss relevant topics and current issues relating to their specialised field. ICAA currently offers subscriptions for the following special interest groups: Information Technology; Insolvency; Forensic Accounting; and Business Valuation. In the future, ICAA plans to move away from the special interest group approach and adopt Specialisations. Specialisation will allow members to become a Specialist of the field, for example a CA BV Specialist will be a Chartered Accountant who is a Specialist in Business Valuation. The programs will be available exclusively to members of ICAA and to attain the designation, CAs will be required to complete certain post graduate studies through an identified higher education institute, with more experienced practitioners having the option to complete a condensed version of the post graduate course Governance ICAA is governed by a Board of 11 Directors which consists of seven members that are elected by Chartered Accountants on regional registers and up to four Board appointed members. All Board member positions are for a three year term, with a third of the positions up for election each year. The President and Deputy President are both elected annually by the Board, with Tim Gullifer and Mel Ashton currently holding the respective positions. The current focus of the Board is a strategic review of the Chartered Accountants Program, a business / information technology renewal project and collaboration with NZICA. Page 19 of 65

20 4.3. History ICAA, in its current form, was originally established in 1908 under the name Australasian Corporation of Public Accountants, before being constituted by Royal Charter in It now operates under a supplemental Royal Charter granted by the Governor-General on behalf of Queen Elizabeth II on 22 August ICAA is the only accounting body to be issued a Royal Charter in Australia. The official coat of arms of ICAA was granted by the College of Arms in 1905 and contains the Latin motto 'Nec Timens Nec Favens' meaning 'Without Fear or Favour'. A diagram showing the antecedent bodies of ICAA is presented below. Figure 6: Antecedent bodies of ICAA The Adelaide Society of Accountants The Sydney Institute of Public Accountants The Adelaide Society of Accountants Incorporated The Tasmanian Institute of Accountants The Institute of Accountants in South Australia,Incorporated The Corporation of Accountants of Australia The Australasian Corporation of Public Accountants Source: Without Fear or Favour; A History of the Institute of Chartered Accountants in Australia 4.4. Members The Institute of Chartered Accountants in Australia 1928 ICAA offers the following classes of memberships: Chartered Accountant (CA) can use the designation CA after their name and must have successfully completed the Chartered Accountants Program or be a teacher of accountancy who meets the eligibility criteria. A current member of an overseas accounting body that is recognised by ICAA can also apply to become a CA. A teacher of accountancy is required to have completed a Doctorate or Masters by research with a major in an accounting related field, held a senior academic position for a minimum of five years, have appropriate Australian Taxation and Corporation Law knowledge and have references from two CAs, their Head of School and another significant academic. The annual membership fees for 2013/2014 for Australian and overseas based members are A$773 and A$618 respectively. Fellow (FCA) a higher designation in recognition of leadership in the profession and contributions to ICAA or the community. For advancement to Fellowship, members must be nominated by two CAs, have been a continuous member for 10 years and held a senior position in employment or in public practice for at least seven years. There is no additional cost to hold the FCA designation, on top of the CA annual membership fee as above. Affiliate a principal in a Chartered Firm, where all other principals are either CAs or Affiliates. Affiliates must have an accounting degree from an Australian university and at least five years full time experience in accounting or another eligible expertise, but have not completed the Chartered Accountants Program. For the 2013/2014 financial year the cost of the annual Affiliate fee is A$1,273. Page 20 of 65