English ICA predicts court battles against financial reporting watchdog

The remarks by an of the institute follow publication of research which concludes that company directors are less likely to produce ‘dodgy’ accounts for fear of being hauled up in front of the Financial Reporting Review Panel.

But Michael Prior, chairman of the English institute’s Centre for Business Performance, believes that will change within the next three years with companies ceasing to ‘tug their forelocks’ to the FRRP.

He said: ‘It’s very unlikely that in another three years time nobody will have ended up in court because compliance in this area is getting tougher all the time, and that’s what needs to happen.’

Directors and auditors whose accounts are queried settled for ‘bruised egos’ rather than risk going to court at the moment, according to the research which has been produced for institute’s CBP by the Department of Accounting and Management Science at Portsmouth Business School.

Since the creation of the FRRP almost ten years ago no inquiries have concluded in a court case, although fifty press notices have been issued regarding companies whose financial statements failed to comply with accounting standards or company law.

The research was based on interviews with company directors and auditors criticised by the panel.

The report reveals general support for the FRRP but latent concerns that the panel took up cases simply to ensure that it was seen to be active.

Stella Fearnley, who led the research team, said directors and auditors were now ‘conscious of the need to avoid doing stupid things’.

‘Previously we didn’t have an enforcement mechanism to get directors to comply with proper accounting standards, and there were big problems of creative accounting andother mischief in the eighties,’ she said.

‘Now there’s something hanging over the company and the auditor and it takes the directors to task, which can be a huge embarrasment.’

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