The horror story from Patisserie Valerie just gets worse and worse. We now understand that the financial position was overstated by £94m.
And as that alarming piece of news was hitting the wires, we also learnt that British outsourcer, Interserve, had collapsed into Administration putting at risk a business that employs 65,000 people worldwide, 45,000 of whom are in the UK, twice the number who were employed by Carillion.
Whilst Interserve has been taken over by a company established by creditors and banks in a “pre-pack” deal, the company’s shareholders were wiped out.
The destruction of value in these cases is eye-watering, and in an attempt to gain some control the UK Government announced last week it will implement many of the recommendations contained in a report by Sir John Kingman to replace the Financial Reporting Council with a new watchdog, the Audit, Reporting and Governance Authority.
The FT reports that amongst the biggest changes backed by the government is giving the new regulator the power to investigate company directors. Currently the FRC can only investigate company directors if they are also registered with an accounting body!
“The Government will also open a separate consultation on whether to adopt a “strengthened framework around internal controls” that reflects the US Sarbanes-Oxley regime.”
Business Secretary, Greg Clarke, announced the Government will be implementing 48 recommendations made by Sir John.
From a layman’s perspective, there are some interesting – sensible – nuggets in the Kingman report. For instance,
- “The regulator should have an overarching duty to promote the interests of consumers of financial information, not producers. It should also have a duty to promote competition; a duty to promote innovation; and a duty to apply proportionality to all its work, and
- “The regulator should be required to promote brevity and comprehensibility in accounts and annual reports,
- “At least once in every Parliament, the regulator should report on its assessment of the extent to which the statutory reporting framework is serving the interests of users of company reports.
- The FRC’s current practice, which is focused on the promotion of good corporate governance, and on work which is important but inherently backward-looking on corporate reporting and audit quality, could and should be supplemented by new forward-looking powers.
These largely fall into Recommendation 5, although its not clear at this point which of Sir John’s 83 recommendations have actually been accepted for implementation by the Government?
The idea that the watchdog should – and require companies to – focus on forward-looking issues is eminently sensible and falls in line with the article below, first published in the “Chartered One”, the Winter 2018 edition of the Liverpool Society of Chartered Accountants, which posits that financial forecasting should play a much more important role in corporate internal controls.
Robust forecasting could help directors & auditors do a better job
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