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LGC FINANCE SUPPLEMENT - MERGER IS STILL ON THE CARDS

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CIPFA chief Steve Freer says rationalisation is the only way forward for public sector accountancy. Kerry Lorimer r...
CIPFA chief Steve Freer says rationalisation is the only way forward for public sector accountancy. Kerry Lorimer reports

Rationalisation of the accountancy profession is beginning to look like tackling world overpopulation: everyone agrees it's a good idea, but no one is volunteering to go first.

Chartered Institute of Public Finance & Accountancy chief executive Steve Freer succeeded in convincing the overwhelming majority of his members that a merger didn't equate to voluntary euthanasia.

Unfortunately, members of the Institute of Chartered Accountants in England and Wales, CIPFA's proposed partners, proved harder to convince. The narrowness of the defeat - 0.3% of the ICAEW vote - served only to intensify the agony.

Luckily, Mr Freer is not a man who is easily disheartened. As soon as the corks were put back in the champagne and the last few ballots swept disconsolately from the floor of the Guildhall - the site, appropriately enough, of a Roman gladiatorial arena - discussions began afresh into how the two institutes could best build on the support they had won for consolidation.

'I'm very much in the optimistic camp,' he says. 'Rather than seeing it as the accountancy profession yet again failing to begin the process of rationalising itself, I feel we are on the threshold of success.'

One possibility is that the vote could be re-run later this year (LGC, 12 January).

ICAEW is carrying out a detailed analysis of why its members voted as they did, in the hope of identifying the factor that turned the doubters off. If the proposals can be revised to incorporate that change, the membership of both institutes would be asked to vote on the amended proposals.

Mr Freer privately admits it is unlikely that any single factor will emerge as the deal-breaker.

Another option would be a vote further down the line on a three-way merger with the Chartered Institute of Management Accountants. CIMA withdrew from negotiations last year, but is now back to the table to discuss its role in any future integration.

Either way, Mr Freer is clear that the vote will not turn into an 'Irish referendum', with members polled again and again until they agree. Neither will he countenance merger at any cost. If revised proposals are to be drawn up, the deal must still be a good one for CIPFA members. 'We will take a principled stance, and have a view as to whether the deal would be improved or undermined by the change concerned,' he says.

Although he believes there are currently no rivals to the ICAEW/CIPFA deal elsewhere in the industry, he warns it is only a matter of time before other players move in, leaving the two institutes on the sidelines. 'In the next five years I would expect there to be developments,' he says. 'If we were to pack away our merger files and retire to that spectator vantage point we would have to deal with whatever came about.'

The alternative route is one of increased collaboration between the two bodies, with the support expressed in themerger vote as a mandate. That might mean, for example, that CIPFA could supply services to ICAEW members in the public sector, while ICAEW does the same for CIPFA's private sector membership.

'We have built a strong relationship with ICAEW and it would be crazy not to try to exploit that by developing a strong business relationship between the two organisations,' says Mr Freer.

In the meantime, CIPFA will be concentrating on filling what it believes could be a lucrative niche in the international market. The institute has already entered into a joint venture to launch a qualification in Canada, and developed strategic partnerships with a number of developing countries.

'There is still the sense of huge opportunities,' says Mr Freer. 'There is a gap in the market for an international institute of public finance. Ultimately the challenge for us is to become an international institute.'

The institute is also planning to make a substantial contribution to Sir Michael Lyons' extended review of the future of local government, due to report back at the end of the year.

Mr Freer has 'big concerns' about the future of the review, warning that the scope for fundamental reform of the finance system is now much more limited than it might once have been.

'I'm quite worried about where the funding review has now got to,' he says. 'Under the initial timetable, Lyons would have reported at the right time in the political cycle, which is clearly the best time to make tough choices. I fear there will be a significant temptation for government for the government to duck change.'

Now is the time to search out a pragmatic solution to the future of local government funding, rather than pursue an idealistic nirvana which has no chance of being endorsed by government, says Mr Freer.

That might involve, for example, reform of the council tax benefit system, one of the themes to emerge from Sir Michael's interim work at the end of last year (LGC, 16 December 2005).

Of course, the challenge of finding a politically acceptable solution to the local government funding dilemma is one that might make the consolidation of the accountancy profession look a breeze in comparison.

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