Regulator heads for pastures new

Just five days into the new year and Sir Christopher Hogg is still getting
comfortable as he settles into his new role as the top man at the Financial
Reporting Council.

But amidst all the kerfuffle around system log-ins and rearranging the office
furniture, Sir Christopher will know he needs to hit the ground running – given
the rather tough act he has to follow.

The recently retired Sir Bryan Nicholson, who chaired the FRC from 2001,
transformed the board from a smallish entity primarily responsible for setting
UK accounting standards and investigating complaints about company accounts to a
greatly enlarged regulator.

It is representative of the change that the Accounting Standards Board, once
the FRC’s major responsibility, is now more peripheral following the
introduction of international financial reporting standards.

But the council’s expansion continues, and while Sir Bryan oversaw five
boards – the ASB, the Financial Reporting and Review Panel, the Auditing
Practices Board, the Accountancy Investigation and Discipline Board and the
Professional Oversight Board for Accountancy – Sir Christopher will be managing

The introduction of the RAP, or Regulation of the Actuarial Profession,
following the recommendations of the Morris review, takes the FRC into
unchartered waters. Sir Christopher will have to guide it through inevitable
teething troubles and ensure the RAP co-ordinates its activities effectively
with the council’s other boards.

During 2005, the FRC released what were considered to be two fairly benign
reports into the state of the audit profession and company accounts. One
commentator called the situation ‘the death knell for self regulation’. Sir
Christopher will need to ensure that this year the FRC is seen to have some bite
alongside all its barking. More reports proclaiming ‘all is well’ will do little
to silence the growing voice of discontent.

The AIDB may provide this, with complaints laid against
Pricewaterhouse-Coopers over the audit of Mayflower due to reach a tribunal this
year. But Sir Christopher is more than equipped to deal with these tricky
situations. As the head of the board at both news agency Reuters and
pharmaceutical giant GlaxoSmith-Kline until recently, his experience will help
him to steer through any potential trouble that may lie ahead.

In the past, Sir Christopher has been a big advocate of appropriate executive
awards, stating last year in his role as GSK chairman that cultural attitudes in
the UK made it difficult to compete against US companies for top talent. For his
£130,000 a year, working three days a week, he will be responsible for ensuring
such executives adequately meet the corporate governance responsibilities that
enable such large rewards.

Sir Christopher has identified one of the major challenges for the FRC this
year as being the implementation of IFRS. The first full results under the new
regime are expected in the next few months and issues over a lack of
comparability could arise.

International auditing standards are equally high on the agenda, with
investors concerned that they are too rules-based and could damage UK audit

The recent decision by the APB to delay the introduction of one crucial
standard may have provided breathing space, but Sir Christopher may find himself
busy dealing with disgruntled shareholders if changes are not made.

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