The Incorporated Institute of Accountants of New Zealand.
Delivered by the President, J. E. Fitzgerald, Esq., C.M.G.,
At the Second Annual Meeting of Members
Held in the Chamber of Commerce, Wellington, on the 29th August, 1895.
Wellington: Printed at the Evening Post General Printing Office, Willis Street.MDCCCXCV.
The Incorporate Institute of Accountants of New Zealand.
Delivered by the President, J. E. Fitzgerald, Esq., C.M.G., at the Second Annual Meeting of Members, held in the Chamber of Commerce, Wellington, on the 29th August, 1895.
Gentlemen,—It seems to be an established custom in societies such as ours that the President shall deliver an address, either on the occasion of his taking the chair or on leaving it at the conclusion of his year of office. Had the opportunity offered itself on my election to be your first elected President, it would have been my immediate duty to have returned you my grateful thanks for the honour you had done me; and although long delayed, I beg you will still permit me to express, in the warmest terms, how highly I appreciate that honour.
For many years, indeed ever since my attention to the subject of auditing accounts was called by my appointment to the office in the Government of the Colony which I still occupy, the formation of such a society as ours has been a subject of frequent thought and conversation, although it was only when taken up independently by gentlemen in the profession itself that any practical steps were adopted to realise the idea.
Gentlemen, I esteem the honour you have done me in making me your first President, none the less that I recognise that I owe that position to your respect for the office I fill, rather than to any personal claim to distinction as a professional accountant.
I have been the more gratified at finding myself in this position because it brings into strong light the great difference which exists in our mutual relations, and those which subsist between official and professional accountants and auditors in the Old Country. For we cannot take up any public journal, such, for example, as the London Accountant, without perceiving how strong is the antagonism between official and professional accountancy, and how jealously the latter resents every fresh encroachment by the former on the domain it considers peculiarly its own. In one branch of accounts in particular this struggle is displayed—that of bankruptcies and the winding up of companies. It is a favourite subject with some correspondents of the English press to point out the enormous costs of winding up an estate by an official administrator, compared with those which have been incurred where the matter has been left in professional hands. Another class of accounts in which the profession dreads the encroachment of officialism is in the audit of the accounts of local and municipal authorities. But there the strife is not so much with the officials—who have not yet in England absorbed that large field of professional labour and profit—as with what may be called amateur auditors, who are elected by the local authorities, and are often not chartered accountants, and whose work appears to be often performed in a very unsatisfactory manner, so much so as to give force to the growing demand on the part of the public that all the accounts of local bodies shall be subjected to the audit of the Board of Trade.
In this happy land, which poetically-minded folk call the "Britain of the South," no such rivalry, so far as I know, exists. Indeed, my presence in this chair would sufficiently refute the charge. The two classes of accounts to page 2 which I have referred, that is, those of bankruptcies and of local bodies, have for many years been audited by the Audit Office, and whilst there is, so far as I have heard, no desire to disturb present arrangements, on the other hand there is no demand or intention to extend the jurisdiction of the Audit Office into private or commercial affairs, and I should strongly deprecate any proposal in that direction.
There is one reason why it is very desirable that the audit of the accounts of local authorities in this country should be provided, as at present by the Government, and that is, that a great number of these bodies are so small and so poor, and so distant from the larger centres of population, that they could not possibly afford the cost of employing professional accountants; and thus before the work was imposed on the Audit Office, the audit of their accounts was frequently entrusted to very incompetent persons. For example, a caso came under my notice some years ago, when we first took up the work of auditing the accounts of local bodies, in which two gentlemen had been for some years the elected auditors of a local body, and who not only had passed the accounts of the clerk year after year as correct, but on the last occasion had gone out of their way to give him a testimonial of the admirable way in which his accounts were kept. As a matter of fact, he had been robbing his employers for years, and as soon as the accounts came into our hands he had to exchange the profession of accountant for one of a more laborious character in an official uniform.
Now, under a Government audit, the ratepayers of the smallest and poorest community have the advantage of having their accounts audited by men of the same capacity and experience as those who are employed on the accounts of the largest and richest towns, and they have the further protection arising from the fact that instant prosecution follows the discovery of any misappropriation of their funds.
The practice of accountancy has of course existed from the earliest times, when every man of business was his own accountant, and traded on his own capital. Its development into a distinct profession in modern times, is merely one of the many instances of the differentiation of human labour to supply the multiplication of human wants. The vast extension of commerce, both internal and international, the large increase in the amount of property held and the business carried on by companies, the extent to which credit has supplanted cash in mercantile operations, the process by which the savings or the capital in the hands of multitudes who have neither the knowledge or opportunity for employing it reproductively, can be placed in the hands of those who can so apply it with security for its due return with profit to the owners—all these are the causes which have called into existence the modern professional accountant, whose duty it is to see that the books of his employer contain faithful records of all his transactions, from which can be prepared a truthful statement of the financial position of the business at any given time the position of an accountant, therefore, is one of high and honourable trust. He is, as it were, arbiter between the claims of all the creditors and debtors of his employer, whose interests he is bound in honour to conserve no less than these of his own employer. Nor is the duty of an auditor in any way different from that of the accountant. He is, indeed, considered to be more independent than the accountant, who is presumed, in homage to the weakness of human nature, to be biassed in his judgment by his employer's interests, whereas the auditor derives his authority from an independent source. But so far as their duty is concerned, and so far as the conclusions they arrive at are concerned, the work of the independent auditor and of the honest accountant is identical.
I used just now the expression truthful in reference to an account. It is, however, necessary to qualify that expression. For it is often forgotten in discussions as to how an account should be made up, that in all mercantile accounts we are not dealing with facts only. Nor can you predicate of any commercial balance-sheet that it is true in the sense in which a mathematical proposition is true. Of a simple cash account in single entry we can say that it is absolutely true or untrue, because we are dealing with facts—our clients did or did not receive, and did or did not pay away so much money. But we all know that is not the case with a commercial balance-sheet. In drawing up such an account we leave the region of fact and wander into that of opinion, and the accountant is compelled to enter figures in his account of which he page 3 may be quite ignorant whether they represent truth or fiction. He is compelled to deal with estimated values of goods, sometimes even with that most volatile and fluctuating of all commercial entities, the goodwill of a business.
And here arises a matter which has been the cause of much discussion amongst accountants, that is, to what extent is an auditor or accountant responsible for valuations? It seems to be the opinion of lawyers, and has, I believe, been asserted by some of the judges in England, that an auditor of the accounts of a company is as personally liable as the directors themselves for false statements in the company's accounts; that is, statements of what has been done or what has not been done which are untrue. But it has not been held that they are liable for the values put upon goods. There are indeed cases in which auditors state explicitly in their certificates that the values given in the accounts are true, and in many cases the auditor may be a competent valuer. For example, he is often a competent valuer of landed estate, and it may be presumed that in such case he would be responsible at law for wilfully and knowingly introducing fictitious values into an account. However this may be, what I am desirous now to press upon your attention as accountants and auditors is, that the science of which we are professors is not an exact science, that there is a large region in which opinion takes the place of law and of fact in determining how books should be kept, and how a balance-sheet should be drawn up. And you can hardly take up a journal dealing with accounts without meeting with a case in which one professional accountant has taken exception to the form of stating an account adopted by a brother accountant of equal authority with himself in the profession. There are, of course, certain principles and rules to be observed in constructing a balance-sheet, but within adherence to those rules there are certain elements in every commercial balance-sheet which deprives the result of that character of certainty which attaches to the solution of problems in other sciences.
But on the other hand, exactly as our science fails in guaranteeing a theoretically correct result, in the same degree does the responsibility of the auditor increase—to take care that where opinion enters into his account, it shall be the opinion of experts, based on the soundest judgment and most extended knowledge of facts obtainable. It was only the other day I came across a report of an address delivered by the President of the Accountants' Institute at Ontario. In many respects an admirable address, but I find him saying in one part of his speech:—"I am desirous that it (that is, the Institute) shall be a tribunal of ultimate resort on all questions of accounts; a court to which all classes of men shall come, voluntarily, and as a matter of course for the demonstration of actual facts in respect to disputed or complicated accounts, and that they shall be ready and willing to pay liberal fees for all the work done by its members. In order that this may be the case, it is absolutely necessary that no one of us shall permit himself to descend from the profession of an accountant to that of an advocate; it is necessary that none of us shall be governed by the fees, rather than the facts; that none of us shall bo induced by sympathy or prejudice or any feeling of loyalty to put forth figures in place of facts; and that none of us shall disturb facts or figures from any fear of personal consequences."
These are noble sentiments, which I doubt not will find an echo in the breast of every member of our society. I quote it at present in order to point out that when the President, Mr. Henry Sye, uses the word fact, he speaks as if a commercial balance-sheet dealt with absolute facts only, and that an account could only fail to be correct by a misstatement of facts, forgetting that the weak point in every balance-sheet must always be that it consists in a large degree of estimates, which, however honestly stated, may prove to be very wide of the truth.
There is one question which has been raised incidentally, although no definite proposition has, so far as I know, been submitted to the Council or to any Committee, but on which it may be as well that I should say a few words. It is whether it is desirable that the Institute should apply to Parliament for a statutory recognition of its existence, or, still further, for enlarged powers or privileges. It is, I know, argued by some that there should be a recognised profession of accountancy as there is of law, and that only members of that profession should be entitled to act, and to charge and recover fees. I fear I shall not be saying what is popular in this assembly if I say that this idea page 4 seems to me a mistake. The professions of law and accountancy seem to me to stand on different grounds, and that what applies to the one does not apply to the other. For what do we mean by law as a profession? We mean a large and complicated machinery for ascertaining and enforcing rights between man and man. Now those rights are very various, and embrace the whole range of human action. Accountancy, on the other hand, deals with only one part of human action, that, namely, which can be expressed numerically, and in the standard coin of the time and place. It is not within the function of the accountant to determine matters of right, but only to record what has been done, whether right or wrong. The law court takes up the work where the accountant leaves off, and determines the right on the facts which the accountant has registered. Again, in law, as a profession and science, there is finality, that is a machinery for finally determining the right, embracing all matters submitted to its decision, whether or not capable of being expressed in money value. If accountancy is to be recognised as a separate profession, is it proposed that it is to have a separate machinery for trying and determining rights and wrongs in matters relating to money? I think it is only necessary to state what is involved in the idea of creating a separate profession of accountants, in order to show its impossibility. A privileged profession of lawyers is defended on the ground that thus only could be obtained a supply of competent judges to administer the law, and yet, even as to law, there are not a few who clamour for opening its ranks to all. Is it contemplated then that there shall be a separate set of courts and judges to determine matters in dispute relating to accounts? I think that will hardly be claimed. Yet without it I hardly see how we can demand a privileged profession. On this point I may mention, not as an argument in favour of the view I am advocating, but as an incident of some interest connected with it, that the oldest of the English Courts of Law, the High Court of Exchequer, which existed so early as in the time of the Norman Kings, not long after the Conquest, was, and continued for a long time, a court for the trial exclusively of Crown Revenue Causes, and only in the course of ages became a Court of Common Law; and thus its history would seem to suggest the inconvenience of, or the absence of, any necessity for the existence of separate tribunals for the trial of rights which can be expressed in money and those which cannot.
There can be no doubt that any movement in the direction of obtaining from Parliament powers which would vest in the members of the Institute anything like a monopoly in the profession of accountancy would be very unpopular, and would not be likely to succeed. What we might reasonably ask for, and would be readily granted, is to secure to our members the exclusive legal right to the use of certain letters after their names as indicating such membership, and rendering it penal in all other persons to adopt them. But I would advise that any application for even such limited privilege should be postponed until the Institute has a position more firmly established, and more fully recognised than is the case at present. Indeed, we can hardly bo said to be in full working order, even at the present time. And this brings me to the principal question to which it is my duty to call your attention, namely, the present position and future prospects of our Institute. The question for what purpose was it founded, and how is that purpose to be attained.
In arguing against the necessity for creating a separate and privileged profession of accountancy, I do not lose sight of the fact that it is a distinct branch of learning, the correct knowledge of which demands careful study and training, and a correct application of which to all the manifold problems which present themselves in commercial affairs can only be obtained by long and varied experience. Indeed, otherwise than is the case in more exact science, where any correct method of solution will lead to a fixed result, the element of uncertainty which clings to all commercial problems makes a larger demand on the personal and individual judgment, skill, and ability of the accountant or auditor who is called on to summarise the financial result of any large or intricate commercial operations.
The first object of any Institute such as this is to provide the machinery by which a line may be drawn between those who are skilled accountants and those who are not. We do not pretend that that line is or can be drawn at present. That must be a work of time. All we can do is to provide the machinery by which that result will assuredly be ultimately obtained. That page 5 machinery is the constitution of a society which shall ultimately assume such a character and such a position in the estimation of the public that all professional accountants will find it a matter of necessity in their own interest to join its ranks, whilst all will be excluded who have not acquired such an amount of knowledge as to entitle them to admission. Of course it is easy for anyone to write to the public papers and say that we are none of us entitled to have been placed in such a position, not having passed any examination entitling us to membership. The obvious answer to such an obviously puerile charge is, that before a society can establish examinations the society must itself exist. I believe it will be found that all similar societies have been formed, and must have been formed in much the same manner as ours. It is true we did not all sit round this table and examine one another. Had we done so, we might have all perhaps plucked one another, which would not have much advanced matters; or we might have formed a mutual admiration club, and passed one another, which, it seems to me, would have left matters pretty much where they now stand. In point of fact, the first members of this Institute were, as you are aware, selected by a committee of gentlemen partly nominated by the Chambers of Commerce at the several principal towns, and partly by professional accountants elected for the purposes of making such selection; and I confess it seems to me that no better means could possibly have been devised for obtaining a fair representative body.
It may be quite true that some of us would find it difficult to pass with credit the examination to which all future candidates will have to submit. If that is the case, it is an evil which time will cure. We know our own lives are limited. We trust and believe that the life of the Institute will be durable as that of the country and the community in which it has sprung up.
It is a miserable and contemptible idea that we have, any of us who have founded this institution, spent our time, our labour, and our money for the sake of any petty advantage we might thereby obtain over rival competitors in the same profession. Indeed a ridiculous charge, when it is considered that we are but doing that which has been found to be useful and necessary in so many communities of our fellow countrymen in other parts of the world. For my own part, I have joined this movement because I am deeply convinced that it is one which cannot fail to confer a permanent and widespread benefit upon this country and community, to the service of which my life has been devoted, and I well believe there is none of us who has been influenced by less disinterested motives. We desire to see a powerful organisation in our midst to which appeal may always be made in all questions relating to right or wrong, to what is honourable or dishonourable in the practice of a profession which must, year by year, become of more and more importance in proportion as wealth increases, and is necessarily entrusted for management to others than those to whom it belongs.
The accountant and auditor is virtually the custodian and trustee of the honesty and honour of the commercial world. Should there be no guarantee of his own fitness for such a responsible position? It is to provide such a guarantee that all accountants' institutes have sprung into existence. The initial of a London chartered accountant is an ear-mark all over the world of a recognised standard of knowledge and competency in the bearer. The initials of every local institution has a similar though lesser value in a smaller sphere. Time alone will show the estimation in which the accountancy of New Zealand will be held. It will be the task of the Institute to provide the machinery by which it may be guaged.
The character which our institute will bear will depend mostly on the character of its examinations. It is to be regretted that a year should have passed without exhibiting this sign of our vitality, and far more that such should have been the result of the death of one of our most valued members, who had undertaken the work of preparing the papers for our first examination. His loss is indeed one which we can never replace, but that arising from the delay in commencing the work of periodical examinations time will soon repair.
Gentlemen, forgive me if I presume upon this, in all probability only occasion, upon which I shall have the opportunity of addressing you, if I urge in the strongest terms that the whole policy of our Institute should be based on the idea that its object is not primarily to benefit ourselves by establishing a page 6 monopoly of professional profits, but to confer a great public benefit on the community in which we live and work.
No one could scan the records of bankrupt estates which pass before me without being impressed with the conviction of how much financial calamity might be avoided if accurate accounts had disclosed in time when a business can no longer be conducted except at a loss.
The direct public benefit which the Institute will confer on the community will be the guarantee that if the work of constructing or auditing accounts is placed in the hands of one of its members, it will be entrusted to one who has a certain amount of knowledge and ability. Indirectly its influence may bo more extensive by promoting and cultivating a livelier interest in all matters which come within the cognizance of the accountant. And this is the principal object of those alterations in the Articles of our Society which the Council has requested you to take into consideration on the present occasion. We think it desirable, and within the objects for which the Institute was founded, to meet those who are engaged in the study of accounts at intermediate stages of their career, and not only as at present, at its maturity. I have always felt that an examination of youths at the period when they are first taken into offices and shops as cadets, would be largely taken advantage of by those seeking such employment, and ultimately be considered desirable, if not indispensable, by those offering it.
As to the wider and indirect influence which the Institute may acquire by wise and prudent administration, I cannot express in more fitting language than that I have already quoted from the address of the President of the Ontario Institute, my hope and expectation that it may one day become "a tribunal of ultimate resort on all questions of accounts—a court to which all classes of men shall come voluntarily and as a matter of course, in respect of disputed or complicated accounts." I, at least, shall never live to see that day, but even the conviction that it will some day come, is some reward in anticipation for the trouble we have taken in founding the Institute of Accountants of New Zealand.
Printed at the Evening Post Office, Willis Street, Wellington.