I have over the last few years been one of a small group who have supported Tim Bush at the Local Authority Pension Fund Forum (who I advise on tax issues) with regard to his campaign for reform of the UK Financial Reporting Council.
Our criticisms have been multifold, ranging from corporate capture from the accountancy profession and business who they were meant to regulate, to failing to act in the public interest, to straightforward incompetence, to failing to address issues of public concern, like country-by-country reporting, on which they could have taken a stand. There have also been considerable criticisms of their governance structures. It was therefore welcome to note this report in the FT this morning:
The UK's accounting watchdog is facing a formal inquiry into its independence and competence after being criticised by Greg Clark, the business secretary.
Mr Clark said in evidence to a committee of MPs that the Financial Reporting Council should be examined, after concerns about its “toothless” regulation of the industry.
“There is a strong case for reviewing the operation of the FRC and that is something that I intend to require,” said Mr Clark. “We should look at the operations of the FRC to see whether there are changes that are required – this should be done independently.”
Bring it on, as I think some say. It's long overdue. And the language is so clear that the chance it will survive looks to be very limited.
That's the good news.
The bad news is that they will probably appoint PWC to do it.
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“The bad news is that they will probably appoint PWC to do it.”
I wish I thought you should have put a smiley after that comment.
From The FT:
“As part of an initiative to highlight our readers’ opinions, we are extending this debate to you.
Should the Big Four auditing firms be required to divest their consulting businesses?
Send your opinion (maximum 250 words) to ask@ft.com by Sunday March 25. We will publish a selection of the best on ft.com next week. ”
It’s not everyday one’s opinion is sought. Too good an opportunity to turn down, I thought.
I have it on my list of thing to do….
You’re lucky you’ve just got one on your list!
I’m less concerned about their general consulting offerings such as IT or HR services. These are usually vastly overpriced and mediocre compared to the specialists. Contrary to popular rumour, the auditors are often surprisingly reluctant to involve their consulting colleagues in case they damage the all important audit relationship. I’ve seen it first hand…
The work that should really be separated out is what is euphemistically called tax and advisory. This is where all the tax avoidance and financial engineering work takes place, that is so damaging both to our tax take and to how businesses are managed. Personally I’d like to see that work dramatically curtailed but separating it out as a first stage would be a good start.
Ultimately I’d be all for a much more tightly defined role for auditors, with much less scope for the ‘fiddles’ that have be one the norm, and regular changes of auditors.
I would hope not after the recent renewed call by FRC to CMA for a competition inquiry into the Big Four. Sadly, it is most likely.
The FRC is also the regulator of last resort for local authority auditing, following the abolition of the Audit Commission in 2015. I have no evidence but would not be surprised if this was a contributory factor to the recent crisis in Northamptonshire County Council. Each lever of scrutiny there appears to have been connected to nothing. I don’t think the Commission would have entirely missed it.
As a member of a Building Society I have the option of a vote on whether to re-appoint the auditors (a member of the Big Four). I’m tempted to vote No and write to the Chairman to list a series of reasons why I “don’t like” the Big Four, but I’d need to suggest an alternative, and I don’t know what that should be.
Can you help, Richard (or anyone else)?
How big is the building society?
This is pretty specialised work….
I guess that’s the problem (I wasn’t thinking to name a replacement, just something more general!).
A big one. Total assets/liabilities £21,000 million, just under one million members.
Then probably only the Big 4 can do it