An influential committee of UK politicians has issued a stinging rebuke to the government over its handling of the appointment of the Financial Reporting Council’s (FRC) new chairman.
Former GlaxoSmithKline chief financial officer Simon Dingemans was named as the government’s preferred candidate for the chairmanship last month.
However, in a report following his pre-appointment hearing, the Business, Energy and Industrial Strategy (BEIS) Select Committee expressed “frustration and dissatisfaction” with the BEIS department of government.
“We have not been told why the chair [of the committee] was not consulted prior to the recruitment process being launched and at every stage of the process we have had to ask the department for the information that should have been provided to us in a timely manner,” the report stated.
“Pre-appointment hearings are an important part of the scrutiny process; the department should seek to facilitate the committee’s work in this respect.”
The committee – which is chaired by Labour MP Rachel Reeves – added that its criticism of the department was “no reflection on the candidate”.
In relation to the former Goldman Sachs banker’s suitability for the role, the report concluded: “On the basis of the pre-appointment hearing, we are satisfied that Mr Dingemans has the professional competence and personal independence required of the chair of the Financial Reporting Council.”
Dingemans’ appointment comes at a critical time for the FRC, which has come under intense scrutiny since the financial crisis.
In addition criticism of its oversight of the audit sector following the collapse of government contractor Carillion at the start of 2018, the FRC has also faced claims from the Local Authority Pension Fund Forum that it misinterpreted UK company law to the detriment of investors.
Transition to ARGA
The FRC is now in the process of transitioning into a new, more proactive regulator called the Audit, Reporting and Governance Authority (ARGA).
Quizzed during his pre-appointment hearing on how he planned to reform the organisation in light of the Kingman Review into the FRC’s future, Dingemans said he wanted to “change the FRC’s focus to serving the end users of accounts as opposed to the preparers”.
“But most importantly of all [we have] to change the culture of the organisation, to make it more proactive, more energetic, more challenging,” he added.
An overview of FRC enforcement activity over the past 12 months released last week showed a near trebling of the annual fines for defective audit work, from £15.5m (€16.8m) in 2017-18 to £42.9m in 2018-19.
The FRC said it had made “far greater use and range of non-financial sanctions” and also overseen a “significant reduction” in the number of so-called legacy cases on its books.