Link: FRC launch special report
The implications for accountants are immense, as the body will exert an increasing influence on their day-to-day work and will make key decisions about maintaining the profession’s integrity and reputation. All this puts a great deal of pressure on the key personalities within the FRC to get it right from the off.
With so many areas to cover, this is not going to be an easy task. Here we look at the main players at the FRC and what will be expected of them over the coming months.
SIR BRYAN NICHOLSON, CHAIRMAN, FRC
Sir Bryan Nicholson has seen his role dramatically expanded since he became chairman of the Financial Reporting Council in 2001. As head of the super watchdog, appointed by trade secretary Patricia Hewit, his remit now spans overall responsibility of five bodies with powers to regulate the accounting industry, judge auditor objectivity and punish inappropriate reporting and use of standards.
In a nutshell, it is Sir Bryan’s job to make sure investors, shareholders and the public at large feel protected from the sort of unscrupulous accounting that took place at Enron, WorldCom and Parmalat – not to mention sinister shredding of the sort that occured at Andersen.
It may sound like a tall order, but Sir Bryan, 72 in June, is no stranger to fresh challenges. A politics, philosophy and economics graduate of Oxford, his impressive CV highlights an illustrious career spanning a number of sectors.
Starting as a management trainee with Unilever, he moved up the career ladder, via Jeyes Group and Sperry Rand, to become chairman of Rank Xerox in 1979. Other career highlights include holding the posts of chairman and chief executive of the Post Office for five years until 1992 and chairman of BUPA from 1992 and 2001.
He’s at home in the world of quangos having been invited by the government to become chairman of the Manpower Services Commission in 1984 – he was honoured for his work with MSC with a knighthood in 1987.
No doubt his stint as president of the CBI will serve him well, as he seeks to reassure UK plc that the new-look FRC is good news. Sir Bryan has been pro-chancellor and chaiman of the council of the Open University since 1996, chairman of Education Development International since 2004 and a non-executive director of Equitas Holdings since 1996.
BARBARA THOMAS, DEPUTY CHAIRMAN, FRC
Barbara Thomas could prove to be one of the most important members of the Financial Reporting Council’s board. She became the youngest-ever commissioner of the Security and Exchange Commission in 1980 – and her detailed knowledge of the US financial watchdog will be crucial to the UK regulator.
Thomas went to the NYU Law School and then practised corporate and securities law in New York becoming a partner in Kaye, Scholer, Fierman, Hays & Handler in 1978. Her stint at the SEC followed in 1980, and in 1983 she moved to Hong Kong to complete another pioneering move, becoming the first female member of the main board of merchant bank Samuel Montagu.
In 1993, she returned to the UK. Currently she is chairman of Private Equity Investor plc and deputy chairman of Friends’ Provident.
But it’s her time as a lawyer working for the SEC that will prove most valuable. The SEC is still consulting on the way it will regulate overseas audit firms, and Thomas could prove a vital point of reference for those negotiations.
CHAIRMAN, ACCOUNTING STANDARDS BOARD
With Mary Keegan off to the Treasury, the FRC faces the task of replacing her. During a potentially difficult tenure, Keegan (main photo, third from left) has added to her excellent reputation, even though the power of the IASB has grown and the ASB’s diminshed.
That shift will only become more pronounced in the coming years – as evidenced by the FRC’s decision to relegate the chairman’s position to a part-time one.
Nevertheless, the FRC wants someone who combines ‘intellectual rigour and an imaginative mind’ with ‘the standing to command authority within the business and professional communities. Candidates are likely to be senior partners in leading accounting firms or in senior finance leadership roles within major public companies. The role requires an understanding of the capital markets’.
Only applicants of the highest quality need contact headhunter Whitehead Mann. But given that the job is not what it once was, will it attract the ‘right’ candidates?
PAUL BOYLE, CHIEF EXECUTIVE, FRC
Paul Boyle is stepping into the unknown in his new position at the FRC. The post of chief executive has just been created. The fact it exists at all is testament to the increased size and responsibility of the new body, which previously operated on what can only be described as a loose, informal basis.
The role of chief executive is also new for Boyle, although he brings with him a wealth of financial experience. His background has seen him move from group financial controller at WH Smith in 1989 to financial director of Cadbury Schweppes at the end of 1990.
After almost eight years at the drinks giant, he moved to become chief operating officer of the Financial Services Authority.
Some reports suggest that his switch to the FRC, announced at the beginning of the year, was sparked by management restructuring at the FSA, which squeezed out his role. But whatever the reason, Boyle will be facing a fresh challenge at a body of growing importance.
Boyle has the opportunity to make the role his own, with no legacy to act as a chain around his neck. In effect, he has the chance to define what it means to be the chief executive of the FRC, a position that in many ways will be unique.
Undoubtedly his relationship with chairman Sir Bryan will be the most crucial aspect of how successful Boyle becomes. For many years now, Sir Bryan has virtually run the show alone. How the chairman and chief executive interact, and how responsibility is delegated between them, could determine the success or failure of the new FRC.
BILL KNIGHT, CHAIRMAN, FINANCIAL REPORTING REVIEW PANEL
When Bill Knight stepped into his position as chairman of the Financial Reporting Review Panel last month, he was taking over an entirely different animal from that which predecessor Richard Sykes QC had presided over for the past four years.
Following the government’s review of the accounting profession, it was decided that the FRRP should take a much more proactive role in finding flaws in company accounts.
Whereas before it would react to a specific complaint or tip off, it will now be examining accounts on a much wider scale, setting its own agenda on what accounts it wants to investigate and why.
It has already set about examining 300 accounts each year.
Obviously, the panel’s new remit has meant that significantly more staff are required, as well as resources. And this is the situation in which Knight has immersed himself.
Like Thomas, Knight has a strong legal and corporate background.
He joined law firm Simmons & Simmons in 1967 rising to the position of senior partner, via a spell in Hong Kong, until his retirement in 2001.
He has also held the position of chairman of the Law Society’s company law committee and is currently deputy chairman of council at Lloyd’s of London.
Alongside this, he is chairman of the enforcement committee of the General Insurance Standards Council.
Knight will need to draw on all the strengths he has amassed in the past to keep the greatly expanded panel focused, on target and respected across the country. It may be down to the FRRP to spot any potential Enron-style disasters before they happen.
RICHARD FLECK, CHAIRMAN, AUDITING PRACTICES BOARD
In the future when scandal hits and the auditors are accused of leaving their ethics at home, it could well be because they don’t meet standards set by Richard Fleck’s new board.
When the government finished its review of accounting and audit regulation in 2002, the APB was made the guardian of audit ethics.
In short, the board is now in charge of setting the standards relating to independence, objectivity and integrity that auditors must now observe.
If an Enron-type scandal happens here, and an audit goes horribly wrong, we will be able to tell because the APB set the rules.
In Fleck, the FRC has chosen a man with years of experience as a lawyer (he is a partner with City law firm Herbert Smith) specialising in corporate and regulatory law.
He took over the chairman’s post as a founding member of the new APB in 2002, though he has been involved in setting auditing standards since 1986.
He is keen to promote the role of ethics guardian, but equally eager to ensure the world understands the limitations faced by auditors.
MIKE FOGDEN, CHAIRMAN, ACCOUNTANCY INVESTIGATION & DISCIPLINE BOARD
Mike Fogden, chairman of the AIDB, is reported to enjoy a spot of gardening, which is handy because his current role is likely to demand some pretty extensive digging.
As of April 1, the AIDB officially takes over the responsibilities of the Accountants Joint Disciplinary Scheme as the disciplinary arm of the profession. One of Fogden’s most important jobs was to appoint a suitable executive counsel to take over from Chris Dickson at the JDS. He opted for Cameron Scott, a partner in the Hong Kong offices of solicitors Allen & Overy.
The role of the AIDB will change, however. Currently it covers members of the ICAEW and ICAS, but this will be extended to ACCA, CIMA and CIPFA.
ICAS has decided to use its own disciplinary panel.
The focus of the AIDB, like the current JDS, will be on matters of public interest – the individual bodies will handle situations that have little public interest.
At 67 years old, Fogden has also been chairman of the National Blood Authority since 1998. His career covers a huge variety of positions, especially in government departments that culminated in him serving as chief executive of the Employment Service from 1987-96.
He is also chairman of the executive committee of the Public Management and Policy Association, completing a CV that shows few signs of him slowing down.
SIR JOHN BOURN, CHAIRMAN, PROFESSIONAL OVERSIGHT BOARD FOR ACCOUNTANCY
When Sir John Bourn became head of the National Audit Office, his appointment was described as a ‘defeat’ for Margaret Thatcher.
The prime minister, it was said, had wished to see someone less independent as comptroller and auditor general.
This quality will stand him in good stead in his new role as chairman of the POBA. The new body will be keen to show its independence. The POBA will have three main roles. The first two – keeping an eye on the regulation of the audit and accountancy professions – will mean working closely with the UK’s six accountancy institutes.
The third – monitoring the quality of audit for larger firms – is likely to prove more controversial. Sir John says that he hopes to overcome the historical tendency for such monitoring to overlook ‘judgement’ by focusing solely on ‘procedure’.
A keen swimmer, Sir John could face strong currents of resistance as he bids to open new channels of scrutiny on audit. The main tool at his disposal will be the Audit Inspection Unit, through which the POBA will monitor audits of ‘economically significant entities’.