Currently playing a quietly effective role, the panel is about to become a whole lot noisier. At present, the panel is reviewing the accounts of public and (large) private companies when potential problems in their accounts are drawn to its attention.
If a problem is identified, it would typically ask directors to explain the apparent departures from normal accounting practice. If it is not satisfied with those explanations, it seeks to ‘persuade’ directors to adopt more appropriate accounting treatment.
When challenged by the panel, directors will voluntarily withdraw the questioned accounts and replace them with revised numbers with errors corrected. If the voluntary correction fails, the panel can exercise its powers to secure the necessary revision of the original accounts through a court order. It maintains a fighting fund of £2m for this purpose.
To date, the panel has succeeded in resolving all cases brought to its attention, without having to apply for a court order – because, say supporters, it is made up principally of current and recently retired company directors and partners.
The prospect of challenging the verdict of your peers is enough to persuade any FD whose accounts have been questioned by the FRRP to fall into line. Sharpish.
And as well as being seen to be one of the most effective regulators around, it is also one of the most cost effective – its current annual spend runs to just £300,000. But in this post-Enron era, being quietly effective isn’t always enough. And in a matter of weeks, the panel will begin to bear its teeth. It will start by reviewing 300 sets of accounts, drawing heavily on the Financial Services Authority’s risk-assessment model.
But this new approach raises a series of questions. It doesn’t just borrow the FSA’s model, the panel will work with the City regulator. How will that arrangement work? And are 300 sets of accounts enough to paint a realistic picture of corporate Britain’s balance sheet? Or, indeed, is it too many given the FRRP’s limited resources, even if the panel is expanded, as is expected? All of these challenges will test the panel’s mettle – and its reputation.
And while the debate about whether auditors are really watchdogs or bloodhounds seems to have gone quiet for now, the FRRP is living proof that a reactive facility can become a proactive one. The only question left to answer is, will it work?
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