Restrictive clauses and the Loch Ness Monster
OFTEN, it’s all in the timing. Yesterday, Accountancy Age reported quite an outburst on the subject of banks forcing their clients to use Big Four only auditors through what are called “restrictive clauses” in their banking covenants.
It took place at the ICAS/Grant Thornton debate on the future of assurance. While many may consider restrictive clauses to be the Loch Ness Monster of financial arrangements (much talked about, but never proven) ICAS president Alan Thomson took the floor and blurted out that as chairman of a private equity house he had been forced to opt for a Big Four auditor by lenders. “That’s not right,” he proclaimed.
Many agree with him. Government minister Ed Davey has even said if such clauses are being used they should be a matter for the competition authorities. Positive, but not far from saying that if the monster does exist it should be a concern for zoologists, not crypto-zoologists.
But despite Alan Thomson’s quite emphatic statement some people remain doubtful that restrictive clauses are actually real.
For example, last night the issue cropped up at the annual open meeting of the Financial Reporting Council. During open questions one member of the audience asked the FRC what it was doing about restrictive clauses because they were, in his words, “profoundly in restraint of trade”.
FRC chairman Baroness Hogg was much less certain. She said the regulator simply did not know the extent to which the clauses were being used and added more research was required.
Far be it for me to point out the obvious but that research now has a place to start – Alan Thomson. It would be no surprise if someone among the competition authorities felt the same way too. Or Ed Davey for that matter.
As far as I am aware the Loch Ness Monster has left little or not documentary evidence. This cannot be the case for restrictive clauses.