PROFESSIONAL ACCOUNTANTS BILL. [H.L.] (Hansard, 27 March 1911)

§ THE EARL OF CHICHESTER
Your Lordships will no doubt remember that a Bill to set up a register for England and Wales was introduced into this House two Parliaments ago. That Bill met with considerable opposition from Scottish and Irish Peers, who feared that the Scottish and Irish accountants might meet with some disabilities under it. I need not further refer to that opposition, because it has been met by the setting up of three different registers and by Clause 22. But other objections were raised. The noble Marquess, Lord Salisbury, raised certain objections, and as those objections apply as much to this Bill as to the last I will address myself to answering them. The noble Marquess said, in effect, that when introducing a Bill of this sort one ought to prove, first, that there was an evil, and then that 643 the Bill went some way to remedying that evil. I am afraid he added that I had not done so. I hope the noble Marquess will blame me, and not my cause. But before I proceed to answer him, I think I should remind your Lordships of the present state of the profession of accountants, and what they are expected to do.
There are in Scotland three great societies of considerable age, and I think I am right in saying that they include almost every practising accountant in Scotland. The society in Glasgow received its Charter in 1855, the one in Edinburgh in 1854, and that in Aberdeen in 867. With regard to Ireland, there is one society, the Institute of Chartered Accountants of Ireland. This society was given its Charter in the year 1888, and I think I may say that practically all practising accountants in Ireland belong to it. In England, the position is somewhat different. There are two great societies. There is the Institute of Chartered Accountants, which was incorporated by Royal Charter in 1880. And then there is the Society of Incorporated Accountants and Auditors, which was incorporated in 1885 under Section 23 of the Companies Act, 1867. They were then allowed by the Board of Trade to dispense with the use of the word"Limited."These two great societies exercise, as do the Scottish and Irish Societies, considerable control over their members, and ensure, as far as they can, that their members should be efficient and practical, first by examination and then by a long course of apprenticeship. They also ensure a high standard of integrity through their disciplinary committees.
There are also in England certain unattached accountants who belong to no societies, and who, not having undergone the terrors of an examination, give no guarantee of efficiency. Their ranks have been and may at any time be added to by accountants who, for some unprofessional conduct, have had to leave the society to which they belonged. Besides these unattached accountants certain limited liability companies have recently sprung up. I have no doubt most of your Lordships have had communications from one or other of them. I shall have something more to say about them afterwards, but I may say here that the view that the profession take of them is that in a great many cases the members of these societies 644 are in no way accountants at all, and would not so define themselves. They are bookkeepers, most estimable people, but they have not the knowledge to practise, and I do not know that they even want to.
What are the duties that accountants are called upon to perform? I think the most important duties are these: (1) auditors of public companies; (2) trustees in bankruptcy; and (3) liquidators of insolvent companies. Those are the three businesses that public accountants are called upon and ought to be ready to perform. With regard to the accounts of public companies, these men have to deal with incomes that amount to millions and to consider the interests of shareholders in the case of hundreds of thousands. Their labours have not been lightened by recent legislation. On the contrary their duties are more responsible now than they ever were before. I believe a recent judgment has laid down that it is not enough for an auditor to prove that the balance sheet of a company is rightly and truly drawn according to the books of the company—he has to go beyond that and to himself make sure that the books themselves are likely to give the right position of that company. And it has been laid down that unless he does so his audit is a farce. Then with regard to trustees in bankruptcy. This is au important point with regard to this Bill, because it is, I think, more as trustees in bankruptcy that inefficient men—and I am hound to say in some cases men who have betrayed their trust—have been appointed. And when you consider that trustees in bankruptcy have annually to deal with sums amounting to £5,000,000, you will see that this is a very serious thing in the public interest. I shall have later on to quote some cases from Parliamentary Papers and from the official reports which the Examiner in Bankruptcy has made, and in which he says that these cases are becoming much too numerous.
When the previous Bill was introduced the attitude of the Board of Trade was described by one noble Lord as"cool but correct."The other day I read my noble friend's speech again, and I need hardly say it was perfectly correct, but I cannot describe it as cool. However, I think I am entitled from what he said then to draw these conclusions—he will correct me if I 645 am wrong—that the Board of Trade do approve of the principle of this Bill, that they do not see anything in the way that it is drafted to disapprove of, but that they hold to themselves the right to propose Amendments in Committee. I hope I am not going too far, but that is what I read into my noble friend's words. I must say that I shall be very much surprised if the Board of Trade did not look benevolently on this Bill. Because what is their position? Auditors of public accounts, trustees in bankruptcy, and liquidators of insolvent companies all have to file their accounts with different officials of the Board of Trade, and it is rather anomalous for these accounts to be so filed when there is no definition of what a public accountant is, and no guarantee that the man who has certified these accounts is efficient, or even honest.
Let me support my case not from ex parte statements but from official Reports which are also Parliamentary Papers. First, the Home Office Report of 1896 dealing with criminal statistics found it necessary to explain away the high percentage of crime amongst so-called accountants by the statement that betting agents and similar persons are in the habit of so describing themselves when they come within the meshes of the law. The Reports of the Inspector-General in Bankruptcy may also he cited as evidence of the difficulties experienced at present in dealing with unqualified and dishonourable accountants. On page 14 of Report No. 17 for the year 1899 the Inspector-General says— The extent to which deeds of arrangement are executed and carried through without any reference to the wishes of creditors is becoming serious. This system is much facilitated by the methods of certain accountants, not belonging to any of the recognised professional bodies, who carry on an advertising and touting business under the cloak of seine high-sounding name of an association for the guardianship or protection of trade. Then on page 12 he states— There are numerous instances in which trustees after realising assets have absconded…Persons entirely without means and of indifferent character frequently obtain trusteeships. Bankruptcy does not disqualify a trustee from acting under a deed, and instances occur in which the person appointed is either an undischarged bankrupt or becomes bankrupt or executes an assignment while continuing to act as trustee. The Department is put to great trouble and expense in obtaining accounts from such impecunious trustees, and when an order is obtained against them they are unable to pay the costs. 646 Further, on page 13 the Inspector-General says— In July last a creditor under a deed complained that he could get no dividend, although the trustee had sold the estate and received the proceeds in February…ticular accountant has had thirteen cases since December, 1897, only one of which has been wound up. In three of them complaints have been received as to his dealings with the estate or as to non-payment of dividend, and in several the trustee is in default as to his accounts. On page 24 of Report No. 20 for 1902 particulars are given of the case of a bankrupt whose real and only business, although he styled himself an accountant, consisted of acquiring options for the purpose of gold mines and other properties. Then there is the case of a man who, though he was excluded from membership of the Society of Incorporated Accountants in 1903 for failure to distribute trust monies left in his hands, subsequently continued to practise as an accountant and was elected trustee of a bankrupt's estate in 1905. The Board of Trade refused to certify the trusteeship on information supplied by the society.
May I trouble your Lordships with just one other quotation' It is from Report No. 22 for the year 1904— Prosecution and conviction of a fraudulent trustee.—This trustee had been an undischarged bankrupt since July, 1000, but had, notwithstanding, succeeded in securing trusteeships under twenty-two deeds of arrangement by using the names of other persons …n one case no accounts have yet been obtained. The imprisonment of this practitioner has for the time being checked his activities, but there is apparently nothing to prevent him from acquiring trustee ships under deeds as previously when he is released"— that is, unless your Lordships pass this Bill.
I will ask your Lordships to look at the Bill for one moment and allow me to explain three or four of the clauses. Only a very few of the clauses need any explanation. Clauses 7, 8 and 9 give in triplicate the list of persons who can claim as a right to be registered. Those who can claim registration are all present and future members of the Institutes and Societies mentioned in the Bill, and the members of certain Colonial institutes or societies who give notice of their intention to practise in any part of the United Kingdom, and all persons who, though not members of any of the said institutes or societies, were in practice in any part of 647 the United Kingdom at the passing of the Bill. Persons not being entitled as aforesaid but who were articled before the passing of the Bill and who pass the prescribed examinations will also be entitled to be registered. Clause 12 allows appeal by either of the three Committees to the Privy Council in cases where it is thought that the standard of proficiency, required at the examination of any of the great societies falls below the proper standard. Clauses 13 and 15 give power to refuse registration in certain cases, and power to remove a name from a register; but a right of appeal against such decision is permitted under Clause 17—to the High Court in England or Ireland, or to the Court of Session in Scotland, as the case may be.
Clause 22 is, perhaps, the most important in the Bill. It prohibits, under a penalty, the use by an unregistered person of the title of professional accountant, etc. The clause further permits an accountant on the register of one of the three countries to go on his client's business—to conduct audits and so on—in the other two countries without registration there, provided he has no place of business in those countries. I might mention that similar Bills to this have been passed in the Transvaal, in New Zealand, and quite lately in Natal, and that the societies which have come ipso facto on to the registers in those Colonies are also parties to this Bill.
Now, I come to the opposition—I hope of a very limited character—that this Bill will have to meet. That opposition comes from certain self-constituted societies which think they have a right to be on the register ipso facto, and en bloc. I think it is easier for me to put our case in the words of the President of one of, perhaps, the most active of these societies which desire to be on the register. I will not mention names. Two sentences from his speech describe better than I can myself the feelings that we have on the matter. He said— The membership of our Association is now 1,102; that is, at November 30 last. May I just show you how we have gradually grown. At the end of our first year—1905—we had 314 members; the next year we had 653; it has gradually gone up—without burdening you with figures—till in 1909 we had 746, and now we have 1,102, an increase of 350 members in one year…I am pleased to say that during the past year we have had 23 candidates sitting for examination, 12 in the month of June and 11 just the other day. 648 Later on, in dealing with the accounts, the President said— You will note the item,' Special issue of Journal and Objects, £276 18s. 4d.,' but on the other side yon will find that the entrance fees were £439, so that you see we spent. £276 to get £440, and I think that shows that the money has been well spent, the result being that our membership has jumped up from about 746 to 1,102. That so clearly sets out the objects and aims of one of these societies who desire to be registered that I do not think I need give the reasons why we trust they will not be so included. I do not know whether that was a post-prandial oration, but your Lordships will probably say in vino veritas. I do not think I need further comment on that. But we do feel that some of these bodies may have a case, and that individuals may possibly have a case to put before the Committee to which your Lordships send this Bill. We are extremely anxious that no injustice should be done, and, therefore, if you grant this Bill a Second Reading, I shall move that it he sent to a Joint Committee of both Houses, in order that these associations or individuals may state their case, and that their arguments may be weighed and considered.
I do not wish in any way to minimise the importance of what we seek. We are asking for statutory powers in order that the discipline and control exercised by these great societies may be made effective, and, bearing in mind that recent legislation has given new responsibilities to the profession of accountants, I do not think it is too much to ask that these accountants should be enabled to raise their profession, to set their house in order, and thus give a guarantee of high efficiency and integrity throughout the whole profession. I beg to move.

§ LORD ASHBOURNE
After the very important statement made by the noble Earl, I assume that your Lordships will be disposed to give a Second Reading to this Bill. I listened with particular attention to his statement, because I remember what occurred when the Bill was introduced two years ago. I myself criticised certain of its provisions, and pointed out that the position of Ireland had been entirely ignored. I am glad to see that that omission has now been rectified. Other objections were 649 raised to the Bill, sonic of which have been removed and some of which still remain. Upon them I offer no opinion now, but I can readily see that when the Bill goes into Committee Clause 22, which was objected to before, will be again criticised and closely examined. I am glad to know that it is intended to keep an open mind in reference to such arguments as may be addressed on Amendments in the Committee stage. Just before the sitting of the House, I was handed a statement of four pages dealing in detail with the Bill, and discussing it apparently with considerable knowledge. I shall myself keep an open mind on that memorandum. If have only had time to read it hastily, but from what I can gather there are a good many people who would like to see the Bill considered from an amending point of view. Therefore I am satisfied that it will be necessary when the Committee stage of this Bill is reached to be prepared to listen to some arguments that will be addressed in reference to the matter.

§ LORD ALVERSTONE
My Lords, I hope your Lordships and the Government will give a favourable consideration to this Bill, because it has frequently come before me in the last eight or nine years that there is a necessity for preventing the use of the word"accountant"in many cases. I have known eases where people have used the term"accountant"to cover all sorts of objectionable businesses, and I sincerely hope that steps will be taken to strengthen the Bill with a view to preventing that. I see that the Bill contemplates permitting persons who are now accountants to be registered. That has been done already with regard to surveyors and engineers, and you can only introduce examinations by steps. I am glad to know that there is an idea of stiffening the examinations, and I hope that the dame which enables the authorities to reject people who are not worthy to be members will be carefully and strictly worked. The present law wants strengthening, because at present the term"accountant"is used to attract people, whereas those using it have no qualifications for it, and are not really carrying on the business of accountants at all. I will not describe some of the businesses now using that title, but they are certainly not callings which your Lordships would wish to encourage under that name. All I desire to see in reference 650 to Clause 22 is that chartered accountants and professional accountants are described by a name which is not to be taken by other people in future. I am satisfied that this Bill will require amendment in Committee, but I think it is a most desirable Bill, and I hope the Government will favourably consider it.

LORD SALTOUN
My Lords, as I was one of those who criticised the Bill on this subject some two years ago, I may say I did so because I thought that Scottish accountants should have equal facilities with English accountants, and in my opinion they did not get them under that Bill. It was then my opinion that the Bill could not be altered in Committee to meet these objections, and I congratulate the noble Earl opposite on the result of what has taken place since. This Bill is a far better Bill, as I am sure your Lordships will agree. I shall be very glad to withdraw the whole of ray objections to the Bill, although certain Amendments can be made, and to very heartily support the Second Reading.

§ LORD DESBOROUGH
My Lords, I would like to say one word on behalf of the London Chamber of Commerce, who are very anxious that your Lordships should give this Bill a Second Reading on this occasion. It is supported by two bodies which are closely associated with the Chamber, and which now comprise 7,784 members, every one of whom is in favour of the principle of this Bill. The business men who are represented in the Chamber of Commerce are very anxious that there should be a definite register of accountants by Statute in the interests, not only of the accountants themselves, but also of the general public.

LORD HAMILTON OF DALZELL
My Lords, I do not think anybody will be surprised, after the very undecided answer my noble friend received when he introduced his Bill the year before last, that he has come forward with another Bill on the same subject. On that occasion, out of the twenty-eight noble Lords who remained in the House fourteen voted for the Second Reading and fourteen voted against it. The noble Lords who comprised that small band will perhaps remember—my noble friend behind me has referred to it this evening—that the attitude of the Government towards the Bill was described by a noble Lord as being"cool but correct." 651 That was a very accurate description at the time, and rather appropriate in view of the international character which the dispute had assumed. But now when my noble friend is, I believe, able to come here and tell us that not only has he removed the opposition of the Scottish and Irish accountants but has actually enlisted their support, I think I may say that the attitude of the Government, while still, I hope, correct, is appreciably warmer and more cordial than it was on that occasion. What the Government hope you will do—and it is the same advice that we gave before—is this, that you will accord the Bill a Second Reading and then agree to the further Motion to refer the Bill to a Joint Committee of both Houses, in order that those who, rightly or wrongly, consider that they have a grievance under the Bill as it stands may have ample opportunity of being heard.

§ THE MARQUESS OF SALISBURY
As your Lordships have been informed, there is no desire on this side of the House to oppose the Second Reading of this Bill. The noble Earl who introduced it referred to me personally, and perhaps I may be permitted to say that the reason why I ventured not to agree with him on the last occasion was that it appeared to me that in the case of the introduction of restrictive legislation an ample case ought to be made out. There are a great number of bodies of persons engaged in different pursuits, and sometimes it is proper to have their professions or trades made into a close profession or trade; but sometimes it is not proper. It depends on the circumstances of the case. Prima facie every subject of His Majesty has a right to call himself anything he pleases, and to trade in any way he pleases, so long as what he does is legal. If you call upon him to refrain from describing himself in a particular way, you have to show some reason for that restriction. The noble Earl gave himself a great deal of trouble, which I cordially appreciate, in his speech this 652 afternoon to show why he thought in this particular instance of accountants such restrictive legislation was necessary in the interests of the public, in order that the public should not be deceived when they see the term "accountant" or "public accountant" inscribed over the door of a particular professional man. I think prima facie the noble Earl has made out his case this evening, and I am pleased to be able to reckon myself as one of the supporters of the Second Reading of the Bill. As to the actual details, it is necessary that they should be carefully scrutinised lest the particular standard which is set up should not be appropriate and should be not fairly drawn, and also to secure that those who administer it should not exclude such rules as would enlist the confidence of the profession and of the public. But that is a matter for Committee, and I am delighted to hear that this subject is to be carefully scrutinised by a Joint Committee of both Houses. I do not think the noble Earl could have taken a better course, and I think he is entitled to the thanks of your Lordships' House for the way in which he has submitted this particular measure.