Keeping Jersey at bay

The island has cleared the way to protecting professionals from costly lawsuits. But accountants have not given up on domestic reform. By Roger Trapp
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The Independent Online
Airlines that ply the route between the City of London and Jersey may be rubbing their hands at the prospect of ferrying accountants and other professionals between their place of business and their registered offices. But in government and some business establishment circles there is distinctly less glee about firms' ability to set themselves up offshore in order to gain greater protection against lawsuits.

If those with reservations are to do anything other than express mild disapproval, they are going to have to act fast because - thanks to last week's decision by the Jersey parliament - forming limited liability partnerships on the Channel island looks as if it will be an option for professionals from early next year.

The legislation has had a rougher-than-expected ride, chiefly because it found itself embroiled in the island's politics. And it has still to gain the approval of the Privy Council - which apparently can take from four to six months. But Senator Pierre Horsfall, head of the finance committee, which sponsored the proposals drawn up with the aid of accountants Price Waterhouse and Ernst & Young, is confident that the conclusive 38- 7 vote in favour paves the way for implementation. Pointing out that that there had been "a significant amount of general interest" in the issue, he said that people had generally become more supportive as they understood it more fully.

With this timetable concentrating minds, there is an increasingly widely held view that the Government could make a last-ditch attempt to pre-empt Jersey by changing its mind over the reforms accountants and - to a lesser extent - other professionals have been seeking for some time. Some are even expecting an announcement around the time of the Queen's Speech next month. But since hopes have been raised before - most recently during the summer, when a similar statement was predicted - nobody is taking anything for granted.

Hence last week's "offer" from Gerry Acher, head of KPMG's audit arm and chairman of the Institute of Chartered Accountants' audit faculty. It has been clear almost since the beginning of this decade, when auditors were first criticised for their role in a string of corporate collapses, that a deal has been there to be done. Auditors have hinted that they would be prepared to widen their remit, provided the laws on liability were changed. But Mr Acher's statement probably amounts to the first explicit quid pro quo.

He said that auditors could become more involved in commenting on internal controls and corporate governance, and help with the detection of fraud, by directing their attention to carrying out "health checks". But only if the law is changed so that the accountancy profession is not exposed to either the single "Armageddon claim" that is so large that it can wipe out a firm, or a multitude of claims that hold auditors solely responsible for failures and encourage them to behave defensively.

Mr Acher - like other senior people in his profession - is pleased that "the imbalance of risk inherent in the principle of joint and several liability [under which a professional can bear the whole loss of a collapse, even if only partly to blame] has at last been appreciated". But they also accept that this does not mean that the campaign has been won.

As Mr Acher said last week, he sees his remarks as a single blow in "a war of attrition", and he will be exploring many more avenues of attack in the weeks ahead.

What is certain is that the profession is a lot better organised than it has been hitherto. It has got other professionals and interested bodies on side. Moreover, though various firms have adopted different solutions - while Price Waterhouse, under Ian Brindle and Ernst & Young under Nick Land, have pursued the Jersey line, Colin Sharman and his colleagues at KPMG have gone for incorporation of the audit arm - they are all agreed on the need for reform, largely on the grounds that none of their answers provides complete protection.

Meanwhile, they detect a friendly face on the other side. Michael Heseltine, who had a brush with accountancy in his youth, is known to be worried about the thought of leading firms of advisers heading offshore, even though they insist there are no tax implications. It is understood that his objections relate to concern about what such a move does to the City's reputation, and to his personal crusade about the competitiveness of the British economy.

The accountants are as well aware as anybody that reform of such an arcane area of the law is hardly a vote-winner for either of the main political parties. And they also acknowledge that their hopes were raised this time last year, only to be dashed by the Law Commission's dismissal of the case for change. But they have been encouraged by submissions to the Department of Trade and Industry's consultation exercise on the subject.

Any airline planning to increase its capacity between London and Jersey would perhaps do well to delay for a few weeks longer.

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