RegulationCorporate GovernanceCity rejects call to tip-off regulators

City rejects call to tip-off regulators

Shareholders fear it could damage their credibility and decimate their own investments

Calls for the City to tip off regulators over potentially dodgy accounts have
been rebuffed by shareholders who fear it could damage their credibility and
decimate their own investments.

Bill Knight, chairman of the Financial Reporting Review Panel, told a
Financial Services Authority conference last week the body has not received
enough leads from City investors and pleaded with them to become more actively
involved.

But the appeal has been met with scepticism from institutional shareholders
who could not see the ‘economic incentive’ of informing the regulator of
potential technical issues within the accounts. They claim that if there was a
positive benefit from informing the panel, then it would be happening already.

Concerns abound that informing the FRRP over what may initially be a fairly
inconsequential matter could result in the establishment of other inquiries,
potentially bringing in other external parties and exposing company to public
scrutiny in a way that could damage its image. As company owners, this could
harm their own investment.

There are also worries that while any tip-off would not be made public by the
FRRP, there is still a risk of exposure within investment circles that could
damage a shareholder’s reputation and credibility.

Uncertainty over what exactly could and should be reported to the FRRP was
also rife. ‘We may take the view that some companies have understated pension
liabilities, but they are probably technically compliant’, one investor said.

‘We also know companies have played IFRS transition to make selective use of
transitional provisions, tweaking the terms of arrangements to avoid accounting
for them properly, but it is all technically allowed. Where does that leave
you?’

Michael McKersie, manager of investment affairs at the Association of British
Insurers, argued that while it was right that investors should be able to
approach the FRRP, ‘it is not their job to be informers’.

Knight repeated his plea to Accountancy Age. ‘If in doubt, give us a call,’
he said. ‘You’ll have no other responsibility to us after the call.’

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