By Lord Sikka
The Kingman Review called for replacement of the Financial Reporting Council (FRC) by the Audit, Reporting and Governance Authority (ARGA). One of the reasons was the closeness of the FRC to big accounting firms, which it supervises, and big corporations. Its lack of independence damaged its credibility.
The process of transformation is under way, but the old habits don’t easily disappear. The FRC has established the UK Accounting Standards Endorsement Board. Its main task is to endorse and adopt new or amended International Financial Reporting Standards issued by the International Accounting Standards Board. The Endorsement Board has individuals linked with PricewaterhouseCoopers, KPMG and Grant Thornton. They are no strangers to accounting scandals. Accounting standards affect distribution of income and wealth through calculation of pensions, taxes, wages and much more, but such constituencies have no representation on the Endorsement Board.
The FRC has also appointed 19 individuals to a newly created Advisory Panel, which will advise it and ARGA on aspects of regulatory matters. 14 of the appointees at some stage of their career had links with the big four accounting firms.
No doubt, it is impressed upon these individuals that they must serve the broader public interest, but their understanding of what constitutes public interest is inevitably shaped by their business interests and the company they keep, rather than what is good for the masses. Good policymaking requires diversity of views, but they will be absent from deliberations of the FRC and the ARGA. This is not an auspicious start.
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