Welcome to the new Independent website. We hope you enjoy it and we value your feedback. Please contact us here.

Business Comment

Bean counters must be held to account too


Outlook Should the accountancy profession be running scared of its regulator? Only if the bosses of the big-four audit firms take flight at the prospect of being slapped by a piece of wet lettuce.

The Financial Reporting Council (FRC) has just unveiled its plan and budget for the next year, and the announcement encapsulates where the organisation is going wrong.

Now remember, the FRC is the body that oversees the UK Combined Code on Corporate Governance which operates on the basis that companies either comply or explain to their investors why not.

The FRC says it wants companies that don't comply to offer better explanations and it wags a stern finger at how accounts are presented while saying that disclosures are often confusing and poorly set out.

In that case you'd think it would be setting an example with its own disclosures. Yet despite the FRC moaning about pressures on its budget in its announcement, it somehow manages to omit what its budget will actually amount to. It also fails to explain what a 25 per cent increase in audit inspections means in practice.

For the record inspections should rise to 125 from 100, and the budget from £27.2m to £32.1m. The information can be gleaned only by picking through the broader, 32-page plan and budget document, supplied as a PDF file.

The "plan" part of that file has the tone of a mildly disappointed schoolmaster telling a pupil he could do with trying a bit harder.

Given how the financial crisis shook public confidence in the audit profession you'd hope for a little more meat on the bones.

But should it be a surprise this is lacking? Look at who's running the organisation. Its chief executive, Stephen Haddrill, is an ex-civil servant turned trade-body boss (the Association of British Insurers).

His chairman, Sir Win Bischoff, is a former investment banker, Lloyds Banking Group chairman and a pillar of Britain's financial establishment. He is just about the last person you'd expect to see riding roughshod over the auditors he's spent so much of his life working with.

It's worth noting that these men aren't the sort you would expect to see at, say, America's Public Company Accounting Oversight Board. They tend to be rather eminent lawyers who have worked in rather eminent institutions and have had regulatory responsibilities in the past. It's also overseen by the Securities & Exchange Commission, not known for its lightness of touch, and was established after the Enron scandal.

The events of the financial crisis which led to the FRC taking on an expanded role were no less scandalous. So too is the FRC's tepid response to the fallout from them.