Balancing the public interest and self-interest: The face of peer review in Australia

Abstract

The implementation of peer review by Australia’s two largest accountancy professional bodies during the 1990s provides a case study in which the interaction of the public interest and self-interest is examined. It is argued that on occasions where individual self-interest of members conflicts with self-interest of the collective, the public interest motivates a way forward.

Keywords

accounting history peer review professional body public interest self-interest

Introduction

While historical work on accountancy professional bodies has classically taken notions of the public interest for granted, more recent work has challenged this and argued instead that professional bodies primarily serve their collective self-interest. However, even within the shift, there is a recognition that the dual motivations of self and public interest remain, even at just a rhetorical level. What is less understood is the influence individual self-interest may play on those dual notions. At times when the profession faces an external challenge, the ability of the professional bodies to be seen to be providing closer oversight of members’ performance that is deemed to be in the public interest becomes critical to their survival. In this article, we focus on such a situation with the development and implementation of peer review within Australian Society of Certified Practising Accountants (ASCPA) and Institute of Chartered Accountants in Australia (ICAA).¹ This form of professional regulation is particularly interesting as an insight into the regulation of accountancy and its social context (Burchell et al., 1980) and as a context where self-interest of individual practitioners and self-interest of the institution as a whole have potential to come into conflict.

Member bodies of the International Federation of Accountants (IFAC) such as Australia’s two largest accountancy professional bodies, ASCPA and ICAA, base their codes of professional conduct on The International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants of IFAC (Accounting Professional & Ethical Standards Board, 2020). The ethical statements of the Australian bodies open with ‘A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest’ (Accounting Professional & Ethical Standards Board, 2020: 100.1 A1). Serving the public interest is one of the characteristics of a profession identified by Millerson (1964) and has been accepted as a hallmark of a professional for several decades at least. However, recent studies of the accountancy professionalisation process have concluded that accountancy’s declarations of acting in the public interest should be viewed with scepticism (Ezzamel and Robson, 2009). Our study of the introduction of peer review to the codes of professional conduct by ASCPA and ICAA during the 1990s enables us to examine more closely the professional bodies’ claims of acting in the public interest and whether the scepticism in the accountancy literature towards their motives is justified. It also contributes to our understanding of the tensions that may arise between collective self-interest and individual self-interest.

The 1990s was a period of profound economic change in Australia. The economy was moving away from being protectionist (MacIntyre, 2012) and towards economic liberalism. The transition was not easy and the economy slipped into recession between 1989 and 1992 (Quiggin, 2001) which triggered a wave of big-name corporate collapses. Accountants, and in particular the large audit firms, were criticised for their role in those collapses (Carnegie and O’Connell, 2010). This period of transition provides an opportunity to examine the role of professions and broader notions associated with the nature of the public interest.

Understanding the accountancy profession

Early work on accounting and the professions tended to focus on two main themes: first, whether accountancy should be considered a profession alongside established professions such as the church, law and medicine. Debate in the literature concerned defining the traits of established professions and how closely occupations, such as accountancy, matched those traits (Barber, 1963; Dyckman, 1974; Portwood and Fielding, 1981).

The second theme concerned why accounting representative bodies were formed. Those studies were based on the concept of social closure derived from Weber’s social and economic model of how individuals band together to monopolise social and economic opportunities and exclude outsiders (Macdonald, 1995). The work is typified by Carr-Saunders and Wilson (1964) who found that closure excludes the unskilled and unscrupulous and thus serves the public interest. The theme has been further developed by Larson (1977) who characterises attempts to monopolise special knowledge and skills to enhance social and economic rewards as ‘professionalisation’. Larson (1977) argues that the benefits of professionalising are twofold: to share in the increased rewards gained from belonging to the collective and also to create a social distance from unqualified or unprofessional competitors. This theme has continued in the literature for the past 40 years, ranging from early analysis of accountancy’s professional power (Pichler, 1974) to more recent work which has pursued more specific themes, such as exclusion of immigrants (Annisette and Trivedi, 2013), education and wealth (Walker and Shackleton, 1998) and race (Hammond, 1997).

Underlying the concepts of professional characteristics and professionalisation is the argument that the profession was ‘created’ to serve the public interest. Millerson (1964: 4) groups serving the public interest as a critical characteristic of a profession together with theoretical knowledge, having a representative body, training and education, a code of conduct, and a professional’s competence demonstrated through passing a test. However, more recent work has challenged and explored this notion of the accountancy profession serving the public interest (Ezzamel and Robson, 2009; Poullaos, 2008; Willmott, 1986). This work has developed to the extent that the idea of accountancy serving the public interest at all is almost completely rejected. Such a view is reflected by Sikka et al. (1989) who argue that the pattern of behaviour exhibited by UK accountancy professional bodies shows them treating the public interest with disdain. Sikka (2001) further refines this position with the observation that accountancy bodies’ ‘idealized claims of “serving the public interest” have enabled them to legitimize their social power and influence’ (Sikka, 2001: 751). From this perspective, the notion of the public interest is a claim mobilised to protect collective self-interest (Bédard, 2001; Mitchell et al., 1994; Preston et al., 1995; Willmott, 1985).

Lee (1995) describes the founding of the accountancy bodies in the United Kingdom and United States as ‘an economic text with a public interest cover’ (Lee, 1995: 64). Lee’s position is supported by evidence of a link between business failures and the profession’s inability to hold recalcitrant accountants responsible, a link which has been highlighted in the literature (Carnegie and Napier, 2010; Clarke et al., 2003; Mitchell et al., 1994; O’Connell et al., 2005; Zeff, 2003).

Canning and O’Dwyer (2001, 2003, 2006) explore the link between the public interest and discipline. Canning and O’Dwyer (2001) raise and dismiss the concept of the public interest in a critique of the disciplinary processes of the Institute of Chartered Accountants in Ireland (ICAI). Canning and O’Dwyer (2003) further develop this theme by exploring the discourse provided by the media and ICAI surrounding the disciplinary process of the ICAI between 1994 and 2001. They argue that declarations of acting in the public interest was a strategy to avoid criticism. Canning and O’Dwyer (2006) take this one step further by exploring whether the public interest announcements of the professional bodies matched the actions they took and found that in minor cases there was little evidence of tension between the public interest and self-interest dimensions. However, the public interest dimension was silenced during serious disciplinary cases where the member under examination was likely to receive a damaging result.

Other authors have suggested that the distinction between the public interest and self-interest might not be so clear cut. In the Australian context, Parker (1994) noted that frequently the public interest has been articulated by the professional bodies while self-interest aspects have been left silent. As such, the Australian accountancy profession’s disciplinary codes support the self-interest of members before the public interest. However, Parker (1994) acknowledges that satisfying self-interest may be contingent on the profession serving the public interest, or at least appearing to do so. Parker (1994: 509) describes a subtle relationship between self-interest and the public interest when he defines private (or self) interest as ‘the latent motivation of ethical codes to protect the interests of the professional accounting body corporate and its individual members’ with latent motivation referring to the self-interest agenda being hidden from the public. The work of Parker (1994) reveals that the relationship between self-interest and the public interest can be complex. Fisher et al. (2001) highlight this complexity in relation to the enforcement of accounting codes of professional conduct and argue that this is not simply motivated by self-interest but by a dual motive of public and self-interest. The concept of a dual motivation is articulated by Krause (1996: ix):

We have always known, from sociological and general literature as well as from everyday experience, that professionals and the professions act with a dual motive: to provide service and to use their knowledge for economic gain.

From this perspective, we would argue that the claim that the accountancy profession serves either the public interest or the self-interest is too simplistic and there is a need to engage more fully with this dual motivation and the linkage between these difference claims. As Lee (1995) argues, a public interest cover may be necessary to allow self- (economic) interest activity, and conversely, private economic interests could conceivably be a cover to public interest contributions. In addition, Bivins (1993) offers three different dynamics at play within the concept of the public interest: while in some settings, it is being served by the maximisation of self-interest (as with Adam Smith’s invisible hand), or it may be served if anyone who wants or needs professional services has access to those services and, finally, the public interest may be served through activities such as pro bono work.

What remains relatively underexplored is the relationship between individual and collective self-interest. Lee (1995) suggests that the founders of the UK and US professional bodies were motivated by economic self-interest. However, the relationship between individual and collective self-interest is not always straightforward, although there are those who assume it is so. Durkheim (1957: 4–5) presumes collective interest overrules individual interest:

As professors, we have duties which are not those of merchants. Those of the industrialist are quite different from those of the soldier, those of the soldier from those of the priest, and so on.

It is this notion of an unambiguous collective interest (be to self or public) that ‘provide[s] a moral foundation for the profession’ and ‘serve[s] as a basis for self-policing of the profession’ (Lindblom and Ruland, 1997: 575). Saks (1995) takes an alternate view and argues that the interests of a professional group are not necessarily the interests of individual workers and practitioners. These divergent views towards self-interest inform the question being addressed in this article: can it be assumed that when there is an external threat to the accountancy profession, the collective self-interest will overrule individual self-interest?

The enforcement of duties, ethics and codes of practices highlighted by Durkheim (1957) and Lindblom and Ruland (1997) are integral to the construction and maintenance of a professional body. To sustain the concept of the public interest, a professional body must convince the public that it can monitor and discipline its members. Therefore, the collective self-interest of a profession is directly dependent upon its ability to maintain the public perception of accounting quality which involves serving the three dynamics of public interest presented by Bivins (1993). However, the establishment and enforcement of these kind of collective mechanisms, while serving the interests of the professional group as a whole, may act against the interests of individual practitioners.

It is with these theoretical notions in mind that we approach a case study of the development and establishment of peer review in Australia where a link is established between the external claims of public service through maintaining quality of service to the behaviour and interests of individual practitioners.

Evidence has been gathered from primary and secondary sources. Primary sources come from the minutes of meeting of ASCPA that were available to researchers through the ASCPA library, from ASCPA and ICAA member handbooks as well as their journals and annual reports. Secondary sources are newspaper articles and articles from the Australian business publication, Business Review Weekly. During the period of the debate, the terminology varied, so a key word search was undertaken of ‘peer review’, ‘quality control’ and ‘quality assurance’ (QA). Particular attention was paid to the context and information being conveyed as well as the source of the data and its intended audience. Going beyond the official publications of the professional bodies draws out issues and responses that were aired in the public domain and not necessarily in accord with the official positions promoted by the professional bodies.

Peer review in Australia

While the economy as a whole was undergoing restructure during the 1980s and 1990s, accountants were also finding ways to adapt to the opportunities economic policy change was creating. The accountancy bodies had to adapt as well and re-examine what it meant for their members to be professional accountants. It was during this time that the concept of peer review was first aired to members (Kelleher, 1984), but exactly how it would be operationalised became subject to debate and modification.

As a general definition, peer review in the Australian context can be taken to mean the requirement for a member of an accountancy body to have either the work processes of their practice or the work itself reviewed by an accountant from outside the practice. Up until the introduction of peer review, being a member in good standing in a professional body was sufficient to denote that accountant as competent, and the professional bodies promoted their members to the public on that basis (see, for example, the 1988 Annual Report of the Australian Society of Accountants and the 1990 Annual Report of the Institute of Chartered Accountants in Australia where promotional activities were reported upon). However, in the face of corporate collapses and public criticism of accountants, the professional bodies needed to be seen to take action on poor professional conduct. Peer review was one strategy employed to appease critics from the business community and regulators. It provides a case where the heterogeneous nature of the accountancy profession and the involvement of actors speaking as individuals and as part of the collective voicing public interest and/or self-interest dimensions are found.

The leaders of ASCPA and ICAA spent 10 years debating with members the merits of mandatory peer review becoming part of the code of professional conduct. The debate occurred through the publications of the professional bodies and, at times, publicly in the press. It commenced in 1984 with mention of quality control standards to improve quality of practice and became a mandatory requirement for public practitioner members of both ASCPA and ICAA in 1994. Terminology varied over time, and for consistency and readability, the term peer review will be used, although quality control, QA and peer review appear to have different meanings. This approach is justified since, at all times, it was intended by the professional bodies that any quality control compliance measures were to be verified by fellow members. Analysis of self-interest and the public interest aspects of the emergence of peer review in Australia has been divided into three chronological phases based on how it evolved: prelude (1984–1989), trial run for audit firms (1990–1992) and, finally, ASCPA and ICAA overcome resistance (1993–1994).

Phase 1: Prelude to peer review (1984–1989)

The first mention of the introduction of peer review came about after the lifting of advertising restrictions on ASCPA and ICAA members in 1984. The president of ICAA, Geoff Kelleher, reported to members via their journal that a special task force had been formed to identify future issues facing the profession. Kelleher (1984: 8) listed potential topics that had been identified by the American Institute of Certified Public Accountants (AICPA) which was also looking into future issues and included the following:

Improving the Quality of Practice. How to maintain general compliance with quality controls standards in all areas of practice at a level sufficiently high to serve public needs adequately.

Mention of peer review was not made again in professional body publications until 1987 when the Chairman of the National Companies and Securities Commission (NCSC), Sir Henry Bosch, implored the accountancy bodies to follow US accountancy bodies and establish peer review in an effort to change the culture of creative accounting that had permeated the profession. This followed from the NCSC querying anomalous financial statements of 12 large public companies (Burge, 1987). Sir Henry’s suggestion was rebuffed by ICAA president, Geoffrey Cohen, who acknowledged that while peer review was being considered, it would be costly to perform (The Chartered Accountant in Australia, 1987) and that any breaches of accounting standards could be dealt with by the professional bodies or the courts (Burge, 1987). That response was made during May 1987, but by the time the annual report for the year was published, ICAA had reconsidered its position. The annual report contained the explanation that creative accounting was giving rise to misleading financial statements and ICAA was ‘considering various means of reviewing the quality controls on members to ensure they are adequate’ (Institute of Chartered Accountants in Australia, 1987: 6).

ASCPA also rejected peer review. Its president, Clyde Dickens, provided several reasons:

(a) the quality of decision making by executives of large companies would be brought into question by shareholders if the audit firms they appointed were subjected to peer review;

(b) ASCPA members who were government auditors already underwent external review by private-sector firms so more peer review would create unnecessary duplication;

(c) small audit firms were concerned that client information being viewed by other accountants might bring about corporate espionage²; and

(d) ASCPA auditor members were required to keep up to date as a condition of their CPA membership as well as for registration with the Corporate Affairs Commission so peer review would be unnecessary (Australian Accountant, 1987).

The reasons given by Dickens illustrate not only the intertwining of public interest and self-interest described by Parker (1994) but also the intertwining of collective and individual self-interest within the profession. Reasons (a) and (b) reflect a public interest argument based on the undermining of the community’s confidence in audit and waste of resources. Reason (c) points to the self-interest of individual members while (d) draws attention to the self-interest of the profession as it places the profession’s interests ahead of the public interest.

In 1989, ICAA announced it had introduced voluntary practice reviews for its members. The reviews were to be self-assessed against documentation it provided (ICAA, 1989). Those participating would not be identified (Chartered Accountant, 1989) and no evidence has been found to indicate the number of practitioners who participated. This may have been an act of collective self-interest since ICAA would now be in a position to say that its members were subject to peer review without members actually having to undertake one, or alternatively, it could be ICAA gradually introducing a major new impost, thus pursuing a public interest agenda under the guise of collective self-interest. In a more progressive move, ICAA members voted in favour of changing the conditions of issue and renewal of Certificates of Public Practice requiring practitioners to ‘confirm that they have established and maintained levels of quality control appropriate to their practice’ and that the confirmations would be subject to review (Institute of Chartered Accountants in Australia, 1990). Members were informed that the profession in Canada and the United Kingdom had adopted peer review (Woolf, 1987) so the ICAA requirement was in keeping with professional conduct in other countries. With limited progress, the prelude period drew to a close.

Phase 2: A trial run (1990–1992)

The year 1990 saw ASCPA and ICAA announce that they had come together to jointly work on a peer review protocol for public practitioners (Boreham, 1990b), but by year’s end, no progress could be reported to members (Boreham, 1990c).

A spate of high value court actions³ against accountants and auditors prompted the president of ASCPA, Ken Eastwood, to tell journalists in September 1990 that ‘the profession must urgently review policies of peer review . . . it’s a situation where the profession must be seen to be doing something constructive, and doing it quickly’ (Allen and Boreham, 1990: 94). Furthermore, ASCPA’s Executive Officer, Michael McKenna, informed a meeting of accountancy practitioners and academics that ‘accountants need to engage in substantial damage control to protect the reputation of the profession. Peer review is one weapon in our armoury’ (Business Review Weekly, 1990a: 91).

It was reported in the press that the Big 6 accountancy firms had expended substantial sums of money already on their own well-established internal peer review processes which had not prevented the sizeable audit failures (Boreham, 1990a). It was also suggested that exemptions from the professional bodies’ proposed peer review might be given to firms with highly developed internal controls, such as the Big 6 (Boreham, 1990b), yet it was court actions involving mostly the Big 6 firms that had raised the public consciousness to poor accounting processes in the first place (Lawson, 1991). It can be reasoned that at this juncture, the profession’s proposed introduction of peer review was looking increasingly like the profession was engaging in both collective and individual self-interest rather than the public interest which had been first voiced in 1984.

A new incentive for the professional bodies to take action came in the form of the New South Wales Corporate Affairs Commission announcement that it would introduce random visits to audit firms to check whether auditors had complied with audit standards. Any problems that were uncovered would result in a recommendation of professional education and repeat offenders would be threatened with loss of company audit registration (Business Review Weekly, 1990b). Given this development and the desire of the professional bodies to prevent or minimise external regulation of the profession (Australian Society of Accountants, 1988; Institute of Chartered Accountants in Australia, 1988), they had little choice but to continue with establishing their own system of peer review, and in May 1991, ICAA informed members that its quality control and practice review programme would:

. . . demonstrate to the public that the Institute’s quality control standards are being established, maintained and adhered to by practising members . . . However, general public knowledge is restricted to the major collapses and the more spectacular frauds. There are other cases of unsatisfactory professional performance which never become public knowledge: cases brought to disciplinary proceedings in professional bodies, statutory regulators’ case history, and claims on professional indemnity insurance [that] all suggest cause for concern. (Charter, 1991a: 56)

The professional body’s admission (in the quote above) that it was concerned by the number of substandard members illustrates how the profession’s self-interest and public interest were at times closely intertwined. Members were informed in May 1991 that IFAC had issued a proposal that member bodies be required to introduce quality control and review of audit firms (Charter, 1991a). However, it was not just audit firms that ASCPA and ICAA were targeting for peer review, it was all public practitioners.

ICAA raised the prospect that members who were not willing to remediate problems identified during a peer review may lose their practising certificate (Charter, 1991a), thus appealing to members’ individual self-interest to ensure conformance. The benefit of peer review for members was also being promoted. Results of the reviews could be analysed to identify troublesome topics which could become areas for future professional education. At the same time, ASCPA president, Brian Waldron, informed his members that peer review would ‘enable us to demonstrate to the community our unswerving commitment to raising the standards of the profession’ (Waldron, 1991: 5). ASCPA also appealed to member self-interest, suggesting that peer review would add value to the services members provided to clients and it would enhance their public image (Cohn, 1991).

A failed unification attempt between ASCPA and ICAA in March 1991 did not disrupt their joint approach to peer review:

In the light of the continuing debate and the attempts to allocate blame for corporate collapses it is imperative that the accountancy bodies cooperate with each other for the good of the profession and to ensure a common approach and truly effective liaison with government in addition to the maintenance of standards. (Burton Taylor, 1991: 66)

However, the external united face of the professional bodies was not sufficient to mask emerging internal dissent, and it was reported in the press that some ICAA members were concerned about the cost and inconvenience of peer review. Those concerns were dismissed by ICAA as being only several dozen out of 7,000 members (Boreham, 1991). Instead, ICAA told the reporter that the review programme would ‘be a valuable source of income for practitioners who do the reviews’ (Boreham, 1991: 87).⁴

ICAA announced it had established a mandatory peer review programme, and within days, a committee member used that development to refute newspaper criticism of the professional body (Charter, 1991b). In a similar fashion, a suggestion from the Commonwealth Auditor-General that external regulation be imposed to improve the audit process was refuted by ICAA with the statement that ‘the Institute believes its practice review program, under which the 65 accounting firms now doing public company audits will be reviewed within five years, is adequate self-regulation’ (Lyons, 1991: 85). There is no evidence to suggest that any mandatory peer reviews had yet been conducted.

The year 1992 commenced with ASCPA amending its by-laws to require public practice certificate holders to confirm they maintained levels of quality control appropriate to their practice and that they ‘must cooperate and assist’ with reviews of their practice (Australian Society of Certified Practising Accountants, 1992b). It is revealing that ASCPA found the need to modify its by-laws to specifically require members to cooperate, as it shows that the leaders were anticipating that members may put their individual self-interest ahead of the collective self-interest.

New opposition to peer review came from a partner in the Big 6 firm KPMG Peat Marwick, Bob Lamond, who spoke to the press about his concern regarding the cost-effectiveness of mandatory peer reviews. He said that Australian and overseas research indicated there would be little impact on the frequency of corporate collapse. He looked to his own firm as an example: despite KPMG having comprehensive and costly internal quality control procedures in place for over 15 years, the firm had been implicated in several large Australian corporate collapses (Business Review Weekly, 1992b; Lawson, 1992b). In addition, Lamond did not think that there were enough suitably qualified members to conduct the peer reviews (Lawson, 1992b). It is surprising that Bob Lamond would say such things publicly since much of the impetus for introducing peer review was to restore public confidence in the accountants and auditors of the big firms such as his. It had been observed that ‘almost all the known examples of failures in the 1980s had come from the pinnacle of the profession – the big six (formerly big eight) accounting firms’ (Lawson, 1991: 23).

Lamond’s public outburst was not the professional bodies’ only problem. In ASCPA’s case, it was having trouble convincing members that the financial cost of undergoing peer review would be worthwhile. It was reported in Business Review Weekly in March 1992 that a survey found that 64 per cent of New South Wales ASCPA public practitioners earned less than $60,000 per year, so any additional cost impost created by having to undertake a peer review⁵ would be significant to these members (Boreham, 1992b). ASCPA National Council investigated alternate funding models but settled on the user pays principle to ‘avoid being the contracting body in the provision of the audit review’ (Australian Society of Certified Practising Accountants, 1992b) and thus minimise the risk of being subject to litigation should audit failure occur. The justification raised by ASCPA draws attention to two interesting points. First, it was putting its own self-interest ahead of the public interest. Second, it was admitting there was a reasonable risk that members who had undergone the peer review process may become involved in audit failure, thus implying that while the peer review process might achieve its objective of raising the professional standards of members, it would not solve the problem of poor accounting.

ICAA had only managed ‘a handful’ of trial peer reviews by March 1992. Gaining legal access to audit working papers by third-party reviewers was not possible (Business Review Weekly, 1992b). By July, the problem was resolved; reviewers would request access rather than demand it. It was decided that clients who refused access might have something to hide and would be subject to further ICAA scrutiny (Business Review Weekly, 1992c). ICAA had turned a legal impediment into a public interest service by interpreting any reluctance by clients to cooperate as an indication of unsavoury conduct.

The latter part of 1992 saw both professional bodies appeal to the self-interest of members by promoting the benefits of peer review. Members were informed that it ‘provides public practitioners with the opportunity to develop more competitive and efficient practices’ (Australian Society of Certified Practising Accountants, 1992a: 4), members undergoing peer review would be credited with five hours Continuing Professional Development (Australian Society of Certified Practising Accountants, 1992a), it was educational (Smithers, 1992), members would earn revenue by conducting peer reviews (Lawson, 1992a) and it would lead to reduced professional indemnity premiums (Australian Accountant, 1992a). The professional bodies also appealed to members’ individual desires to put the public interest ahead of personal gain by undertaking peer review to demonstrate ‘their commitment to the users of accounting services’ (Australian Society of Certified Practising Accountants, 1992a: 4) and ‘that they are complying with the highest professional standards available’ (Australian Accountant, 1992a: 30). At the same time, members were reminded of the threat of externally imposed peer review (McGregor, 1992), so cooperation would be in the profession’s collective self-interest.

Despite these inducements and threats, member resistance had become more apparent by the end of 1992. A member disgruntled by the lack of consultation called for a referendum in a letter to the editor of Australian Accountant (1992b) and a smaller rival professional body, the National Institute of Accountants (now called the Institute of Public Accountants), reported that it had received a ‘flood’⁶ of new member enquiries from ASCPA members unhappy with the introduction of peer review (Business Review Weekly, 1992a).

The trial phase revealed that the professional bodies were having to work hard to encourage members to accept the introduction of peer review. Not unexpectedly, appeals to members’ individual self-interest through incentives and threats were a regular form of motivation as was the pursuit of collective self-interest to minimise external regulation. The professional bodies also tried to elicit cooperation by appealing to members’ public interest motivation. However, there was push-back that varied from Lamond’s public interest criticism of peer review to members pursuing self-interest and abandoning their professional body.

Phase 3: ASCPA and ICAA overcome resistance (1993–1994)

ASCPA membership renewal forms due by the 1 January each year required members in 1993 to declare whether their practice maintained appropriate levels of control (Australian Accountant, 1993a). Of the 4,500 public practitioner members (Australian Society of Certified Practising Accountants, 1993a), only 200 completed declarations had been returned by February (Australian Society of Certified Practising Accountants, 1993b). While the declarations were not directly part of the peer review programme, they were a newly adopted precursor since they asked members to declare whether they were adhering to standards currently in place (Australian Accountant, 1993a). The high level of non-compliance indicates the depth of resentment members felt towards peer review. A meeting called by Western Australian public practitioners was described as ‘emotional’ and ASCPA leaders noted that these were ‘professionals concerned about a threat to their professional standing’ (Business Review Weekly, 1993d: 74).

Disquiet was expressed in a letter to Australian Accountant in March 1993 by Meyer (1993: 11), a member who thought the peer review programme to be ‘what I consider the greatest threat to small practitioners I have ever encountered’. The letter concluded with the following:

I think it is about time that the bureaucrats of the Society stopped their empire building and got out of their ivory tower and into the real world. I appreciate that this letter will tread on a few toes but it is necessary so that other members may have their say – I have not yet found one in favour of the scheme.

Meyer (1993) provided three arguments against peer review: the likelihood of confidential information spreading in a small town, the cost of undergoing a peer review that cannot be passed onto clients as they may move to a cheaper, non-member accountant and clients perceiving a peer review as the professional body suspecting the accountant of wrongdoing.

By April 1993, ASCPA leaders were acknowledging that member opposition to peer review was ‘extremely well’ (Ivanov, 1993: 22) organised with the opposition group numbering 1,000 out of the 4,500 public practitioner members (Business Review Weekly, 1993c: 54) while ICAA described it as ‘a time when opposition is mounting’ (Business Review Weekly, 1993a: 176). Later that year, ASCPA was reporting that ‘Society members across Australia have engaged in lively debate’ (Australian Accountant, 1993b: 6). Opposition was still apparent at the end of 1994 when a member wrote a letter to Australian Accountant explaining why he joined the National Tax and Accountants’ Association⁷:

You need to ask yourselves why so many CPAs are joining the NTAA. In my opinion it is because the ASCPA is losing touch with its members. The recent QA program was a good example. You did not understand the mood of the members. It is not enough to say that some research was done to ascertain members’ opinions; the important thing was that somewhere you got it wrong. (Lopez, 1994: 10)

The sentiment expressed by Mr. Lopez demonstrates how ASCPA and ICAA persevered with the introduction of peer review despite a sustained and united opposition by disaffected members.

Although ASCPA and ICAA were persisting, they had begun listening to members and modifying what would be involved in a peer review. During 1993, the Quality Control Guidance Manual was amended to include a simplified section applicable to small tax-based practices (McKenna, 1993) and free half-day courses on peer review were offered to members (Gooley and Downes, 1993). Also, ASCPA and ICAA reasoned that member resistance was all part of the introduction process, and in Ireland that resistance had turned to support within five years (Business Review Weekly, 1993e). Members were advised that if the professional bodies did not introduce peer review, it was likely external regulators would take on the task (Grice, 1993; Harrison, 1994).

In the April 1993 issue of Australian Accountant, the incoming ASCPA National President, Graham Paton, reminded members that ‘unfortunately in servicing our clients and employers we have become associated with the tax scams of the ’70s and with the collapse of a number of companies in the ’80s’ and ‘our most important job now is to re-establish confidence in the profession’ with peer review ‘ensuring that members are worthy of the confidence placed in them by their clients and the community at large’ (Ivanov, 1993: 23). Paton went on to explain that not to do so may see the demise of the profession, thus appealing to their collective self-interest as well.

During 1994, both ASCPA and ICAA conducted reviewer training and some peer reviews. ASCPA recorded reviews of 69 members who had undergone reviewer training (Australian Society of Certified Practising Accountants, 1994) and ICAA recorded 70 reviews of its members, with only minor problems being found (Lawson, 1994).

What had seemed like a good idea for the profession in 1984 finally became mandatory for public practitioner members of ASCPA and ICAA in 1995. Reflecting on the events witnessed in phase three reveals the depth of resistance exhibited by members of ASCPA and ICAA. Throughout the period, ASCPA and ICAA sustained their position that peer review was in the public interest and the collective self-interest but they were not able to demonstrate to all members that it was in their individual self-interest.

Conclusion

Burchell et al. (1980: 6) observed,

Accounting problems have seemingly got even more detailed, precise and interdependent, resulting not only in the need to articulate new practice but also to formally explicate what previously had been implicit in practice.

The introduction of peer review by ASCPA and ICAA is an example of practice that was once implied by membership of a professional body but by the 1990s required formal explication. That it took 10 years for the two largest Australian accountancy bodies to articulate and negotiate peer review in their attempt to address the profession’s failure to meet community expectations indicates the complex nature of public interest, collective self-interest and individual self-interest. Throughout the period, ASCPA and ICAA maintained that the fundamental principle for professional accountants was the public interest.

While accounting academic literature has pointed to a dual motive at best or a more cynical self-interest wrapped in a cloak of public interest, the examination of the introduction of peer review in Australia reveals that self-interest of the collective (the profession through the professional bodies) may conflict with the self-interest of individual members and require the public interest motive to help resolve that conflict.

The assumption that collective self-interest would overrule individual self-interest was not shown to be so in the case of peer review. Despite years of explaining the need for peer review to members, the closer the time came for its implementation, the stronger the resistance that was exhibited by members. Resistance ranged from members refusing to acknowledge they had maintained appropriate standards in their practices to forfeiting their membership and leaving the professional body altogether.

For smaller practitioners especially, self-interest equated to financial survival. The professional bodies’ decision to pass the cost of performing peer reviews onto members demonstrated a lack of understanding of the financial constraints felt by public practitioners during the late 1980s and 1990s. While professionalisation literature such as Larson (1977) identified the economic rewards of belonging to a collective as a main motivator for formation of a professional body, during Australia’s recession, membership did not guarantee financial survival. In addition, it was not necessary to belong to a professional accountancy body to practice as an accountant in Australia. Yet, ASCPA and ICAA survived and remained the largest two accountancy professional bodies. For those public practitioner members who chose to remain as members, we believe that for them, the public interest was more than rhetoric; acting in the public interest and agreeing to peer review were relevant and important.

While it is clearly important for professional bodies to articulate to members the significance of external threats to the profession as a whole and to them as individuals, the case of peer review has shown that it is just as important for professional bodies to work with members to find ways to adapt, so that the public interest, collective self-interest and individual self-interest are more closely aligned.

Footnotes

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

ORCID iD

Wendy Shelton

Notes

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