The distance between former ICAEW chief Eric Anstee’s new office and his old home at Moorgate Place is a mere couple of hundred yards – and three and a half years since he last left the building as boss.
While the institute’s inaugural chief has moved on, both physically and emotionally, since then, he still holds a lot of affection for his time with the ICAEW. “I left the institute after three and a half years in December 2006, and I’ve done another three and a half years after that. But I think I left it in really good shape – and they found a good successor in Michael Izza.”
But, in a wide-ranging and opinionated interview, the former FTSE 100 finance chief was in no mood to dwell on the past.
With a half a page of notes at hand, he works through the points he has to make one-by-one. First, his recent past. With Anstee Associates he worked on his dual career: non-exec roles with a bit of corporate finance on the side. But just months after his departure from the ICAEW the credit crunch hit, leading to a deep and long-lasting recession. Anstee is quite clear that he had spotted some of the problems before the event – the collateralised debt orders and packaged products that were bought into by the banks with little effort to find out what was lurking inside them.
“During my last year at the institute I spent a lot of time warning the Bank of England about CDOs, plus the role of hedge funds.”
While regulation seems around the corner for the secretive investors, Anstee is wary of strangling the life out of them with red tape. “We don’t want to increase regulation, but increase supervision.”
Although he regrets dropping out of the institute as the profession faced major pressure, his work at the FRC as a non-executive has kept him in touch with the key issues. Echoing the then FRC chief Paul Boyle, Anstee believes the profession has had a “very good recession”, in that it hasn’t faced wholesale changes in the way it operates. But it’s not over yet, he warns.
“Perhaps we haven’t seen all the issues that may yet develop from the banking crisis – [there could be] more to come from contingent liabilities – and further writeoffs… I’m sure the auditors of banks and the financial services sector are on extra alert. So far the profession’s performed really well.”
He thinks the FRC got a handle on how auditors had to be robust in issuing going concern notices and, as businesses kept investors fully in the loop of what they meant, these notices avoided what was the biggest fear – that they became self-fulfilling.
“The FRC is delighted we got out there with guidance on the whole area,” he says. “It has made a lot of management openly discuss the issue with their auditors and shareholders, and that openness creates better dialogue.”
As we move at breakneck speed from one big accounting issue to another, Anstee (who appears not to have aged a jot over the past seven years) talks about his new chief executive role at the City of London Group. With what he describes as having a fantastic name in the City, COLG has delved into a diverse mix of investments in the past, including mining PR.
But now it will be more focused around professional services investment and financial services. The move suits Anstee, who has found an outlet for his desire to drive entrepreneurial outfits through investments and seed funding.
Alongside its FSA registration, COLG has backed startups including an investment fund in Edinburgh – plus an online foreign exchange platform for SMEs.
Litigation funding, an area that’s sure to prove very active for anyone involved in commerce – particularly insolvency practitioners and auditors – will also receive investment from the group.
And if that isn’t enough to keep them busy, it will also throw some funding at professional services firms.
“We’re looking at this whole area of creating funds helping to grow professional services firms. We intend to raise another fund aimed at the legal profession in a more general sense,” says Anstee.
The Clementi Review, which has opened up investment to the legal profession, will provide investment opportunities, particularly where teams within a firm are looking to spin out.
It won’t just be departments moving out of firms either, suggests Anstee. He expects further consolidation of the accountancy market, citing the Tenon/Bentley Jennison merger as “quite positive for the industry”. He believes that strength is required below the top six firms, essentially to offer choice to clients. “Wherever the markets develop we need [the profession] growing underneath – that can only be healthy.”
He also expects the five to ten partner firms to move away from offering broad compliance-based work. Specialist units will build up within the good firms, he says, with Littlejohns based in the Docklands as a good example in its quality fundraising expertise.
Discussing the future brings Anstee onto another of his big concerns – where financial reporting is heading.
Annual report pages can run into three figures, most of their content ignored or incomprehensible – with the juicy stuff buried away for good measure. Throw in the fact that the information is all out of date anyway, and Anstee argues things need to change.
And the catalyst for change might come from an unusual source – the introduction of XBRL technology to tag data so it can be compared with other companies’ financial information.
With XBRL being used to file companies’ tax returns online, Anstee thinks that with businesses already updating their IT, regulators should now turn the reporting model upside down.
He wants quite a lot of things. The reporting model for the future should prominently include narrative; forecasting and management information; and deal with sustainability.
Oh, and all easily accessible via the internet of course.
“We should be looking at something more dynamic and forward looking. Accounts is a discipline but it should switch to the web. People should embrace it. This is the right time to say how companies should report to their stakeholders. Let’s be sensible now and move to web-based reporting.”
And by web reporting, Anstee doesn’t mean throwing the annual report into a downloadable PDF.
He wants to see FDs and CEOs webcasting about their results. The information should be easily comparable with the company’s previous results, and any part of the data easily lined up against competitors’ figures. “This generation of accountants needs to be looking ten, 15 years out at what’s needed, and that needs to happen now… we need to embrace technology and make sure the profession is developing.”
Providing more forward-looking information obviously ramps up the pressure on auditors, which Anstee acknowledges, but the profession shouldn’t “shy away” from moving their clients into the 21st century.
“They can do it for prospectuses – but yes it does increase risk.”
Another aspect of the process should be to bring audit liability back onto the table.
While the government provided a legislative framework to allow auditors to limit their liability, in practice agreements have failed to be thrashed out with clients, primarily because of the fear that shareholders would just vote down any such request.
“I think that’ll come back onto the table rapidly this year, because alongside the reporting models and so on, you then look at auditing standards and the quality of reporting – linked into that issue is ‘what’s our liability?’”
Fifteen minutes later, and another half a dozen major topics tackled, and Anstee’s on the move – this time to a COLG board meeting. After a few years out of the limelight it’s abundantly clear that Anstee is ready to talk the talk and walk the walk.
The question is: can anyone keep up with him?
The next crisis?
You get through one financial crisis and already people are asking what the next one’s going to be. Eric Anstee thinks he knows the answer. The public sector pensions deficit. The government suggests a £600bn figure – others claim it is a cool £1trillion. Anstee is infuriated on a number of points.
Most importantly he believes that the government’s actuaries are failing to be as rigorous as the private sector in gauging the real impact of pensions as a cost. “We need openness in terms of what the cost of those pensions are, and the accumulation each year – from teachers to local authorities. It’s different in each place.”
When accounting for pensions took on board the notorious standard FRS 17, many corporates racked up huge deficits, leading to the closure of hundreds of defined benefit schemes. But Anstee feels that the public sector must go through a similar process. “We haven’t seen accountants in government doing that – they need to stand up and say this has to be properly recognised and accounted for. Successive treasuries and chancellors hide behind this issue. We can’t afford not to have it – even though it might affect bond yields and credit rating, but we must know.”
But will we see a return to the dark days of the Seventies, with the public sector grinding to a halt through strikes, if pensions are changed? He doesn’t think so, particularly having dealt with similar situations at
Eastern Electricity (itself formerly government-owned) and Old Mutual.
“I’ve grappled this. Once you talk to employees about the issue and explain the situation they’re realistic – do you want a pension or a job? There isn’t a free lunch here.”
He is disappointed that CIPFA has not made more of the issue, but he feels that they are “conflicted” as its members themselves would be affected. “Had CIPFA merged [with the ICAEW] then the body above the members could have [taken on the issue].”
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