What impact has Enron and WorldCom had on the accountancy profession in the UK, and what needs to be done about it?

Charles Tilley:The whole Enron/WorldCom issue has had a huge impact on the business community generally. For the first time that I can remember we've been faced with a scandal with implications far wider than the city and business circles. Even a couple of builders at my tennis club were discussing the WorldCom issue and its impact on their pension funds. It's rare that a corporate scandal has that kind of impact.

The situation has had a very significant impact on accountants, whether they are working in big business or smaller firms. And at the end of the day the Enron account was put together by their finance people and their board - similarly with WorldCom - and it was very misleading in both cases.

In the UK the last thing we want to be is complacent. When you are faced with a real disaster like this, the worry is that at soon as any company has some bad news for the markets, there will be an excessive reaction. In the current climate I think that the situation can only be resolved through time. We need to gradually rebuild the confidence of investors - it won't happen over night.

Do you think the controversy has had an effect on putting people off joining the profession?

Charles Tilley:I'm not sure it will have done much for the image of accountants in the US - but this is due, in part, to the need for public retribution. Frankly, I find the concept of finance directors paraded down the streets in handcuffs not dissimilar to people in third world countries being executed for small crimes. It certainly wasn't done through necessity.

Elsewhere, I don't think anyone is put off accountancy as a career, but I do think that there is a heightened awareness of the importance of professional institutes and the ethical standards they bring to bear. When you sign up to membership of CIMA, for instance, you undertake to carry out your work to high ethical standards, which is not the case in non-professional business and financial qualifications. Employers and stakeholders increasingly need to know that their finance people not only have confidence in the numbers, but can also inspire confidence through their integrity.

Patricia Hewitt said in a speech in Cambridge in July that action must be taken on a global scale to restore confidence. However, Digby Jones told ePolitix recently that "the last thing in the world we need is to muzzle every labrador in Britain to get at one rotweiller." Who do you agree with?

Charles Tilley:I would agree with both of them actually. We operate in global markets. Some time ago I found out that my coal supplier in the Isle of Wight now imports coal, not from Wales, but from Argentina because it is cheaper. That just shows how global the world really is in terms of its markets.

At the end of the day, the restoration of those markets is not going to be achieved by government. It's going to be achieved by investors having the confidence to invest in the market place.

Clearly that trust has got to be rebuilt across the world so that global markets can operate. Nothing will be achieved by putting in huge amounts of regulation and vast bureaucracy which can only work against capitalism. Capitalism, after all is really what those markets are about.

The Americans recently passed the Sarbanes Oxley Act which aims to eradicate corporate corruption in the US. Would you support a similar bill in the UK?

Charles Tilley:We haven't had the same disasters in the UK. That's not to say that we're completely immune from this sort of catastrophe, but I do think that it is less likely to happen here because we have principled based accounting standards and other rules rather than a standard rules based operation.

The concept of the director saying the accounts are right and signing up to the fact does not seem unreasonable; it seems to be a responsibility that any board of directors has.

There has been some controversy surrounding the role of non executive directors recently. Are they important in rebuilding confidence?

Charles Tilley:The role of non-executive directors is critical in rebuilding confidence, along with transparency in business reporting. CIMA is calling for a Code of best practice for non-executive directors to be incorporated into the Combined Code. We need to distinguish between non-executive directors and independent directors, and we need to critically assess the recruitment and selection process of the Chairman of the Board.

We already have solid corporate governance foundations in the UK, largely because of the corporate crises we faced in the late eighties and nineties. Disasters including BCCI and Polly Peck led to various reviews such as the Cadbury report, which strengthened our corporate governance structure.

But to me the independent director is the absolute key part of the checks and balances within corporate governance and although I think in general we're doing a good job, we'd certainly recommend that whole area should be upgraded.

Patricia Hewitt believes that "confidence has been lost in the independence of auditors as a result of Enron". Do you think that auditors should be limited to offering auditing services?

Charles Tilley:Unfortunately I think that we're getting to the point that even if there isn't a conflict of interest the public thinks that there is one and we need to act quickly to restore confidence amongst investors.

It is interesting to see that all the big firms have reacted to this particular problem without the need for law to get rid of their consultancy practices. That is an example of markets working to force people to do things.

Should they just do audits? No I don't think so. Activities such as investigating companies who are about to be acquired, which is another form of insurance, requires a level of expertise which the auditors have.

They do need to be more careful about potential conflicts of interest, though. The definition of their services needs to be looked at very carefully to minimise the public's concerns about confidence.

The government is shortly to publish a white paper on company law. What do you hope to see in the proposals?

Charles Tilley:I think there is a whole of raft of things we'd like to see. The primary aim of the latest paper on company law is to make things simpler. There are a lot of really useful things in there in terms of how companies can re-capitalise and so forth without going through a very difficult legal process.

But the most valuable thing in there is on the issue of the Operating and Financial Review. To me, this is potentially a huge step forward. At the moment companies produce their numbers. What they don't produce on a consistent basis is a statement identifying the valuation factors and risk factors within a company.

That needs to be done on a codified basis. We need a consistent approach, company by company, we need genuine clarity in reporting, rather than bland statements. The best companies produce this information already but it's a matter of doing it consistently.

Financial figures are out of date as soon as they are collected, so how can companies ensure that investors and the City get truly meaningful information?

Charles Tilley:It's a huge challenge. This is not just about accountants - there are lots of other people involved in investing in companies including investors themselves and the complexity of corporates and big business these days is enormous. Many of the large companies around the world have bigger turnovers than the GDP of many countries in the world and they are very fast moving.

The first thing which has got to happen is that investors have got to trust the management which is onboard and that's where we have the problem at the moment - if you don't trust the management you've got a real problem.

The markets can provide better information. I think one of the suggestions coming out of the States is that the daily sales of companies should be put into the market place. But I think that would just produce another set of information which individuals wouldn't necessarily know how to interpret and would produce even more volatility.

Investors need to establish whether they trust the management of a particular company. Once that trust is established you can look at announcements conveying bad news in one or two ways. If the news is industry-related and is the sort of thing that you would expect to arise because of the marketplace they operate in, that shouldn't undermine your confidence in the management so a knee-jerk reaction would be foolish.

Alternatively if something is announced which really management should have known about and should have kept shareholders advised of earlier then loss of confidence is entirely reasonable.

Is the real problem the short termism associated with companies' fascination with shareholder returns? Is it possible for companies to think long term?

Charles Tilley: The short termism in the first instance is driven by the markets and thereby the investors. What both the investors and the company need to think about is undoubtedly medium term to long term growth and that at the end of the day is where the real value is.

The dialogue between companies and their investors needs to focus very clearly on medium term plans and strategies. The problem is exacerbated by investors who buy and sell purely on the basis of short term information. This encourages companies to take a short term approach, which inhibits long term performance. The trick is to manage short term expectations with clear and transparent reporting, whilst focusing on long term strategies which are also communicated effectively to shareholders.

The Earth Summit has highlighted the need for sustainability and environmental awareness. Should companies be forced to report on these aspects of their business?

Charles Tilley:In reality, looking after the environment is good business. A number of large companies advertise their environmental awareness but I do think consistent guidelines on what should be said would produce a fair balance. We need to make sure that we don't just hear about the good things being done; until we know the extent of the damage being done, the positive side is meaningless.

There seems to be a general consensus that we don't want a huge layer of regulation and bureaucracy. But some straight forward guidelines in terms of what companies are doing to both protect the environment and where risks are being taken would certainly be a positive step forward.

The government believes that business has a central role to play in promoting sustainable development. Do you agree?

Charles Tilley:I think that it's in the interests of all companies to have a good environmental record, and it is this fact that is likely to prove the best argument for businesses taking part in sustainable development.

It's completely pointless for the government to try and force the companies to do things; but if companies are forced to disclose their environmental risks, that will motivate many to ensure that they are whiter than white.

Capital markets have a wonderful way of regulating companies; if investors demand transparent reporting and policies supporting sustainable development, businesses will be only to keen to oblige.