Pressure building on UK audit regulator’s leadership as inquiry begins
Members of the UK parliament questioned whether the leadership of the Financial Reporting Council (FRC), the country’s accounting watchdog, is fit for purpose.
Politicians have urged Sir John Kingman, chairman of a review into the future of the FRC, to confirm that his inquiry will examine the regulator’s leadership and culture.
In an an open letter, the joint chairs of the Work and Pensions Select Committee and the Business, Energy and Industrial Strategy Committee invited Sir John to “consider whether the leadership of the FRC is equipped to effect the necessary change.”
An FRC spokesperson declined to comment on the contents of the letter but referred instead to the watchdog’s April statement welcoming the Kingman review.
The MPs’ intervention followed the release on 16 May of a damning report into the collapse of the outsourcing firm Carillion. The report accused the Pensions Regulator (TPR) and the FRC of being “united in their feebleness and timidity”.
TPR chief executive Lesley Titcomb announced last week that she would step down from her role at the end of her contract in February 2019.
Frank Field and Rachel Reeves, chairs of the two MPs’ committees, said in their letter of 22 May that they had “multiple serious concerns about the performance of the FRC”.
The MPs also argued that the FRC needed a “significant shift in culture” to perform as the public expected.
Critics of the FRC have argued that it is too close to the audit firms that it supervises, and that it has failed to pursue them with sufficient vigour since the financial crisis.
The FRC has also been criticised for taking too long to wrap up investigations into allegations of audit shortcomings following corporate collapses.
Sir John Kingman has already started the process of taking evidence for his probe, having contacted stakeholders privately. Sources familiar with the process, who spoke to IPE on condition of anonymity, said Sir John was fully aware that his options included scrapping the FRC.
Political pressure building on FRC
Separately, the FRC has also come under scrutiny in the UK parliament’s upper house, where Liberal Democrat peer Sharon Bowles has tabled a total of 65 questions for ministers to answer related to the FRC and the country’s audit regime.
The questions addressed topics such as the collapse of Carillion, company law and the FRC’s procurement policies.
In addition to the FRC’s existing woes, the opposition Labour party’s John McDonnell has ordered a review of his own into the entire auditing and accounting regime in the UK.
The review will be led by Prem Sikka, professor of accounting and finance at the University of Sheffield.
In a speech to the Labour party’s “State of the Economy” conference in London last month, McDonnell said the Carillion collapse showed that “the accounting and the pensions regulators have once more failed to do their jobs.”
Sikka’s review is intended to develop principles for good regulation, streamline the regulatory system, promote efficiency and timely action by regulators, and make them more accountable to the public.
Sikka told IPE: “This is a people’s review and we would love to hear form anyone who wants to have an input.”