Accountants to take on BOJ in who audits banks 

By McPherse Thompson, Staff Reporter

Source: Financial Gleaner, August 3, 2001

ACCOUNTANTS have vowed to fight impending legislation that will see the Bank of Jamaica (BOJ) determine which accounting firms are selected to audit the island's commercial banks, merchant banks and other licensed financial institutions.

The Financial Gleaner has learnt that the BOJ's proposals are being made against the background that some auditors were less than forthright in their assessment of some banks which failed during the 1990s.

Controversy over the Central Bank's right to veto the selection of auditors came to a head last week, as accountants gathered in New Kingston to air their grouses and hammer out a plan of action to take to a meeting between the BOJ and the Institute of Chartered Accountants (ICAJ), the regulatory body for the profession.

Senior partner at Deloitte & Touche, Ethlyn Norton-Coke, herself an attorney-at-law, said she was, in the interim, seeking the advice of well-known constitutional lawyer, Dr. Lloyd Barnett, to determine the legality of some of the BOJ's proposals.

Although the accountants did not detail the objectionable proposals, what emerged from a public forum organised by the ICAJ at the Hilton Kingston Hotel last Friday was that the BOJ has advocated, among other things, that a sole practitioner cannot be appointed auditor of a financial institution unless the firm was involved in a partnership; that in order for a firm to qualify as an auditor of a commercial bank there should be at least two qualified accountants with at least five years' experience; that after an auditor has been appointed the firm must furnish the BOJ with audited financial statements for the prior 15 months as well as in-house accounts for the prior three months; and the BOJ reserved the right to determine whether, based on an individual's past performance as an auditor, such a person is fit and proper to audit a bank.

Moderator of the forum, Audley Gordon, an audit partner at Deloitte & Touche, as well as the three presenters, including Mrs. Coke, argued that it was yet unclear why the BOJ wanted to implement such proposals. They steered clear of any suggestion that the central bank was trying to increase its regulation to prevent a recurrence of the problems which led to the financial sector meltdown in the 19990s, noting that no proper explanation has been advanced for the new directives.

However, Wilburn Persaud, an economist and director of the state-owned Financial Sector Adjustment Company (FINSAC), who was among the audience, suggested that there were elements in the accounting profession who had done the "wrong things" and the BOJ was merely seeking to ensure that the financial problems of the 1990s did not recur.

A lecturer at the University of the West Indies (UWI), Mr. Persaud asked the accountants not to just see the proposed regulations as a move by the BOJ against the accounting profession. "I don't think this should be a matter which should create adversarial relations between the BOJ and the ICAJ and the Ministry of Finance," he said.

However, Mrs. Coke, responding to Mr. Persaud, asked: "Is the Bank of Jamaica trying to hand over, to shrug off its own deficiencies and pass the blame onto the auditors in total?" Furthermore, she asked, "what has the bank of Jamaica done to put in place greater supervision of what it is supposed to have been supervising all these years and failed to do?" She invited the BOJ to first take an introspective look and then seek to find out how it could improve the situation. "The solutions begin with the Bank of Jamaica itself," she said.

Mr. Persaud said he was not an advocate of the BOJ and would be "the first person to say the supervisory activity of the BOJ (during the period in question) was awful." However, he felt that rather than approach the issue in a confrontational manner, the ICAJ should seek to have dialogue with the BOJ.

Ashburn Simon, managing partner at Ashburn Simon & Company, who made the first presentation at the forum, said he has seen no proper explanation for the BOJ's proposals, except that it was by virtue of power conferred on the Minister of Finance, a situation which he said was open to abuse.

He said the two most significant interests to financial institutions were the concerns of their shareholders, whose protection was vested in their right to appoint their own auditors, and the public, whose interest was protected by the BOJ's right to supervise and intervene in those institutions, "and not necessarily to decide who audit these institutions."

Mr. Simon said that based on the proposed regulation he could not qualify to audit a financial institution because he was a sole practitioner, but added that the central bank has given no reason for such a proposal.

He said the accounting "profession has worked well for this country over a long time, and I don't want anybody to put forward the argument, and I hope they don't, that the problems we had in the financial sector, it is the responsibility of accountants, because then they would have to come forward with the evidence."

Mrs. Coke, giving a legal perspective, argued that it was a base principle for professionals to be self-regulatory, and therefore, "to have a piece of legislation like this is a serious erosion of that self-regulatory position."

She said that while the Minister of Finance has the right to make the regulations, they had not passed through the normal channels of the Chief Parliamentary Counsel. "They know nothing about this. It seems to be coming directly out of the BOJ and I am yet to find out if they have been vetted by the Attorney-General," said Mrs. Coke. "On all accounts we must fight this and we must deal with it and deal with it effectively now," she said.

Carrol Thorburn, a founding member of the ICAJ, said the BOJ has acted unilaterally and the legality of its action should be challenged.

Other accountants who participated in the forum said the choice of auditors of financial institutions should be the prerogative of shareholders and directors. The BOJ proposed regulation, they said, would take away those rights.