Anyone aching to be convinced that there are no weeds at all in corporate
UK’s garden should turn to last week’s first report from the Financial Reporting
Review Panel since it turned bloodhound.
After reviewing no fewer than 226 sets of accounts – the lion’s share
selected proactively – the panel announced that it had found no evidence of
systemic weakness in any of those examined. Nor, we can assume given the size of
the sample, is there systematic weakness elsewhere within the top tier of UK
Once you finish with that blockbuster, you could re-read a slightly older
page-turner – the first publication from the Professional Oversight Board for
Accountancy’s Audit Inspection Unit.
When the report landed six weeks ago, POBA chairman Sir John Bourn was moved
to say: ‘We found that each of the Big Four firms have the necessary
infrastructure in place, and commitment, to complete good quality audits.
These reports do, of course, present the FRC with a problem. Had either the
FRRP or the AIU report – or even both – revealed systematic failure, there would
have been an outcry. Companies, auditors and government would have said
‘something must be done’ and rolling heads would have been demanded.
Conversely, however, when an almost entirely rosy picture is painted, it’s
too easy to dismiss findings like these as a whitewash.
In that sense, the FRC is between a rock and a hard place. But, in
considering next steps, council members, could do worse than pick up holiday
reading of their own – last month’s DTI company law reform update.
It said: ‘The FRC is committed to considering the quality of corporate
reporting and auditing in the round, on the basis of transparent processes and
comprehensive consultation with stakeholders. The FRC and the government are
considering how best to take forward this process in the future.’
Hopefully the FRC will continue to report that all is well in the City. And
hopefully it will be proved right. But in doing so it needs to strike a balance
between instilling confidence and sounding complacent. That won’t be easy.