Is the Financial Reporting Council the fit and proper body to investigate KPMG?

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The Financial Reporting Council is to investigate KPMG's audit of Carillion. Candidly, I think that wholly inappropriate because the people who run the FRC cannot be objective to undertake that task. Let's look at who is on its Audit and Assurance Council:

Sue Harris

Chair

Sue Harris is an independent non-executive director. Amongst her appointments are:

Independent director of Bank of Ireland UK and Barclays UK Retirement Fund.

Candidly, two banks that have had difficulties is not encouraging. Then add from amongest her past directorships::

She has held senior executive positions in the Financial Services and Retail sectors. Most recently at Lloyds Banking Group she was Group Audit Director and prior to that the Group's Financial Control Director, the Director leading the Bank’s potential accession into the Government Asset Protection Scheme, Finance Director of LBG's Retail Bank and Finance Director of Cheltenham & Gloucester.

You might say she knows a lot about corporate failure and bail outs. But does that in any way make her objective for this role?

Mary Cleary

Member

Mary is a fellow of the Institure of Chartered Accountants in Ireland. And:

Mary has been a partner with PwC Ireland since 2005. She has worked and continues to act as audit partner across a diverse portfolio of complex clients, including listed and large private entities. She also leads PwC Ireland's audit methodology group, with responsibility for the implementation of audit methodology and policies in the Irish Practice.

With respect, that's not likely to lead to an open mind on systemic audit failure.

Olivier Beroud

Member

Olivier Beroud is an independent non-executive director, chairs the risk committee of Stratford Art Trust and runs a consultancy, Beroud Consulting.

As his biography notes:

He specialises in credit ratings and risk analysis, corporate governance and pension covenant assessments. He held a number of senior finance executive positions including as Managing Director, EMEA head at Moody's Investor Services, where he led Moody’s EMEA business, sitting on the main EU board and on the boards of subsidiaries in Israel, Russia and South Africa. Prior to that he ran a risk department at Barclays Commercial Bank, focusing on the banks' grading systems.

Moody's were part of the problem that led to the 2008 financial crisis. So were Barclays. Again, it can be said he knows all about failure. But it does not suggest a mind that is likely to, once again, be open to systemic risk because his career is embedded in the status quo.

Paul Cox

Member

Paul Cox Member Prior to becoming Senior Lecturer of Finance at University of Birmingham. Which sounds like good news. As his biography adds:

Paul was an equity fund manager at Kleinwort Benson Investors. Paul is an Investment adviser at The National Employment Savings Trust (NEST) and since 2007 has provided pension and investment expertise to the Department for Work and Pensions, Personal Accounts Delivery Authority, Department for Business, Innovation and Skills, and Ministry of Justice. Paul is an academic member on the Occupational Pension Fund Stakeholder Group of the European Insurance and Occupational Pension Fund Authority (EIOPA). In 2017 Paul was engaged by the European Commission to support countries become future European Union member states by drafting amendments to existing national legislation on voluntary pension funds, capital market laws, and cross-border pension activity in order to harmonise with EU law. This included introducing new methods and methodologies to support the national supervisor carry out its work. Paul has a PhD in finance.

He may have the required skills to undertake this task as a result.

Bryan Foss

Member

Bryan is an experienced independent director. His CV adds:

[He is a director] with a UK challenger bank, an FS regulatory services provider and various early stage fintech and regtech companies. He has more than 10 years board, audit, risk and assurance committee experience in private and public sectors, including an LSE listed company, the Department for Work & Pensions (DWP), DCLG and a further education body.

So he identifies with boards and is part of the regular appointee network. That does not inspire confidence.

Jane Fuller

Member

Jane Fuller is a Fellow of the CFA Society of the UK and serves on its Financial Reporting and Analysis Committee. The CV adds:

She is co-director of the Centre for the Study of Financial Innovation, an independent think-tank in financial services, and runs a consultancy, Fuller Analysis. She specialises in savings and investment, and corporate governance. A former financial editor and Lex writer at the Financial Times, she continues to train FT journalists and is a columnist with Accounting & Business, the ACCA magazine.

That looks like plausible experience.

Kari Hale

Member

As Kari's CV says:

Kari is a senior Audit Partner with Deloitte, focused to serving clients in the FTSE 100.

A chartered accountant and a partner since 1997, Kari has extensive experience in audit, regulation, governance advisory and risk consulting.  He is presently the senior statutory auditor for Anglo American PLC, Severn Trent PLC and the European Bank for Reconstruction and Development, having served RBS in that role between 2010 and 2014.

Given that the Big 4 stand or fall together I count him out for this review.

Scott Knight

Member

Here the CV says:

Scott Knight is the Head of Audit and Assurance for BDO LLP having been a partner in since 2003. He specialises in auditing natural resources and commodity trading companies and audits a number of listed and AIM companies.

OK, it's not big 4 this time: but it's all from the same pool. And her has every reason to want KPMG out of the way. That in itself is a conflict of interest.

Stephen Oxley

Member

I think we need not go far here:

Stephen Oxley is a senior partner at KPMG.

Jerry Wedge

Member

Jerry has an interesting CV:

Jerry Wedge is a NED and Chair of the Audit Committee at North East Essex Clinical Commissioning Group and a NED at the Bar Council. Jerry is also Treasurer of The Royal Alfred Society, a maritime charity. Jerry is former NED and Chair of the Audit Committee at Essex Primary Care Trust.

Jerry is former Director of Finance and Support Services at Trinity House and throughout his career has held a number of senior finance positions, including as Director of Resources at the Disability Rights Commission, Director Corporate Services at the British Communications and Tecnnology Agency and Director of Finance at Wigan Borough Partnership

He may be  a chartered accountant, but count him in.

 

So, that's three plausible members of this Board out of ten. And that's not enough for it to be credible.

The Financial Reporting Council is not the body to do this work. This is a job for government appointed investigators. The powers still exist as far as I know. Use them.