The resurrection of professional auditors
The Polish accounting or auditing profession has suffered much criticism in the press, even in this paper. Is this fair? Should we knock something that was an attempt to genetically alter a rabid bloodhound into a bushy-tailed watchdog, one which is now trying to be a parent to a new generation? After all, we have to instil confidence in a population that is frightened when it hears the word "auditor."
Before World War II, there was an auditing profession in Poland matching those in other countries, including the USA, the UK and Germany. The 1934 commercial code, which refers to the duties of the "Biegły Rewident," was as forward-thinking as the commercial laws in the allied countries. The Biegły Rewident was appointed by private owners to assure that their investments were managed appropriately.
During the post-war period, ownership structures became state-controlled, with companies and assets nationalised. Since the state had different priorities and reporting requirements, the goals of enterprises changed to meet productivity targets and rejected non-allowable costs; that is, the government decided what costs the enterprise could accept. The 40-year evolution of the profession spawned the Qualified Chief Accountant (Biegły Księgowy), who worked for a state enterprise as a finance director and each year took paid leave to audit other enterprises on the instructions of the tax office. Thus during this period, the profession went from a watchdog to a rabid bloodhound.
Its main goals were to report on production plans versus actual costs and to ensure that the acceptable costs were recorded. This went to such a level that company presidents were at the mercy of chief accountants and their decision whether to accept delegation (travel and entertainment) costs. A rejection of such expenses led to the amount being deducted from the president's salary.
Who was the boss? The state via the chief accountant. You may ask why the chief accountant had this power. There is a simple answer: he was personally responsible for the financial books, which were subject to an audit by another chief accountant (Biegły Księgowy) under direct subcontract to the tax office. Very few young people reached this level. The chief accountants were usually in their 60s. They were supplemented for audit purposes by those who had retired, so that the average age of an auditor was around 70. We do not need to imagine the mindset of these Qualified Accountants (Biegły Księgowy) and their methods of working. Most of us have already encountered them.
Then came the political and economic revolution of 1989, which introduced a market economy where there was (and still is) the development and transfer of ownership in, some would say, a disorganised fashion to private hands. This brought a need to change the audit and accounting profession. The auditing law of 1992 provided for the possibility for the Biegły Księgowy to be genetically manipulated into the Biegły Rewident. Courses were arranged, and the notions of private capital and owners defining expenses differently from the tax authorities were taught. Some accepted the change readily, while others could not adapt to the changing circumstances and stuck to their old habits.
In 1994, there were further changes to the auditing law, including a high educational standard for new recruits. Many experienced bookkeepers in their 50s thought that it was a good idea to have professional qualifications. But not many young people were interested in the first exams, where high entry level requirements needed to be established to attract the best professionals. Therefore, the failure rate during the first two years of the exams was very high, sometimes near 100%. The exams quickly eliminated the opportunity seekers and showed the Big Six accounting firms that there was a future in the profession with academic standards similar to those in the West. This attracted several groups of trainees, including internally trained Polish management accountants seeking to supplement their positions with professional qualifications, younger accountants who saw that they were more capable of passing the exams than their bosses, former university students seeking a quick career path and the Big Six advising their audit staffs to take the Polish route.
Life became a simple calculation for those with bookkeeping experience. Two years of exams plus a two-year application process for a practising certificate allowed the first significant batch of accountants to get their memberships in 2000.
Now, there are nearly 1,000 newly qualified auditors who have replaced their older colleagues in medium-sized and large practices, including the new Big Four, and have replaced expatriate managers in the larger firms as well as the Big Four.
As we all know, it takes at least 10 years to train a good manager. Therefore, we can see why there are not many newly qualified auditors in managerial positions. They are only now coming through the experience hurdle.
Many people want an instant solution to the misdirected 40-year evolution. They think that the accounting and auditing profession can be subject to a miracle similar to the Berlin Wall coming down overnight. But with the practical problems this evolution brought, we are still struggling to cope with its debris 13 years later.
Joe Smoczyński is president of the accounting firm Moore Stephens Smoczyński i Partnerzy.
Before World War II, there was an auditing profession in Poland matching those in other countries, including the USA, the UK and Germany. The 1934 commercial code, which refers to the duties of the "Biegły Rewident," was as forward-thinking as the commercial laws in the allied countries. The Biegły Rewident was appointed by private owners to assure that their investments were managed appropriately.
During the post-war period, ownership structures became state-controlled, with companies and assets nationalised. Since the state had different priorities and reporting requirements, the goals of enterprises changed to meet productivity targets and rejected non-allowable costs; that is, the government decided what costs the enterprise could accept. The 40-year evolution of the profession spawned the Qualified Chief Accountant (Biegły Księgowy), who worked for a state enterprise as a finance director and each year took paid leave to audit other enterprises on the instructions of the tax office. Thus during this period, the profession went from a watchdog to a rabid bloodhound.
Its main goals were to report on production plans versus actual costs and to ensure that the acceptable costs were recorded. This went to such a level that company presidents were at the mercy of chief accountants and their decision whether to accept delegation (travel and entertainment) costs. A rejection of such expenses led to the amount being deducted from the president's salary.
Who was the boss? The state via the chief accountant. You may ask why the chief accountant had this power. There is a simple answer: he was personally responsible for the financial books, which were subject to an audit by another chief accountant (Biegły Księgowy) under direct subcontract to the tax office. Very few young people reached this level. The chief accountants were usually in their 60s. They were supplemented for audit purposes by those who had retired, so that the average age of an auditor was around 70. We do not need to imagine the mindset of these Qualified Accountants (Biegły Księgowy) and their methods of working. Most of us have already encountered them.
Then came the political and economic revolution of 1989, which introduced a market economy where there was (and still is) the development and transfer of ownership in, some would say, a disorganised fashion to private hands. This brought a need to change the audit and accounting profession. The auditing law of 1992 provided for the possibility for the Biegły Księgowy to be genetically manipulated into the Biegły Rewident. Courses were arranged, and the notions of private capital and owners defining expenses differently from the tax authorities were taught. Some accepted the change readily, while others could not adapt to the changing circumstances and stuck to their old habits.
In 1994, there were further changes to the auditing law, including a high educational standard for new recruits. Many experienced bookkeepers in their 50s thought that it was a good idea to have professional qualifications. But not many young people were interested in the first exams, where high entry level requirements needed to be established to attract the best professionals. Therefore, the failure rate during the first two years of the exams was very high, sometimes near 100%. The exams quickly eliminated the opportunity seekers and showed the Big Six accounting firms that there was a future in the profession with academic standards similar to those in the West. This attracted several groups of trainees, including internally trained Polish management accountants seeking to supplement their positions with professional qualifications, younger accountants who saw that they were more capable of passing the exams than their bosses, former university students seeking a quick career path and the Big Six advising their audit staffs to take the Polish route.
Life became a simple calculation for those with bookkeeping experience. Two years of exams plus a two-year application process for a practising certificate allowed the first significant batch of accountants to get their memberships in 2000.
Now, there are nearly 1,000 newly qualified auditors who have replaced their older colleagues in medium-sized and large practices, including the new Big Four, and have replaced expatriate managers in the larger firms as well as the Big Four.
As we all know, it takes at least 10 years to train a good manager. Therefore, we can see why there are not many newly qualified auditors in managerial positions. They are only now coming through the experience hurdle.
Many people want an instant solution to the misdirected 40-year evolution. They think that the accounting and auditing profession can be subject to a miracle similar to the Berlin Wall coming down overnight. But with the practical problems this evolution brought, we are still struggling to cope with its debris 13 years later.
Joe Smoczyński is president of the accounting firm Moore Stephens Smoczyński i Partnerzy.
