Stephen Haddrill, who is set to step down as the CEO of the Financial Reporting Council (FRC), argued that corporate failures under the regulator was due to the lack of powers that it holds.
During a select committee meeting on the future of audit, held at Parliament, Haddrill was asked if more could have been done in the past to avoid major corporate failures.
The FRC has recently been named as a ‘toothless tiger’ and a regulator that does not exercise any powers, which has been brought to attention by members of the committee.
The lack of powers given to the FRC has caused limited effectiveness in the regulators work, according to Haddrill.
He argues that if the powers mentioned by John Kingman in the Kingman Review was given to the FRC, then this certainly would have prevented major corporate failures.
Haddrill said: “When we review the reports and the accounts of the company, we get the reports and the accounts and we ask the company a lot of questions. What we don’t have the ability to do is really go into the company and test those answers. And he (Kingman) recommends a power like the FSA who has to appoint an expert.”
He noted the FRC has placed proposals to the predecessor of the parliamentary committee back in 2016, asking for such powers. He added that with Kingman’s support there is hope that the government will take the request for powers forward.
The committee questioned the FRC regarding if anything more could have been done over the nine years with the FRC’s existing powers.
Haddrill admitted the introduction of audit firm monitoring and supervisory approach on a voluntary basis should have been introduced earlier.
Presently the firms have agreed to monitoring and supervision of themselves beyond just the inspection of individual audits. This voluntary action was brought in to change audit quality as a whole.
Reflecting back to Carillion, Haddrill stated that the approach should have been introduced back then.
However Haddrill stated that there was no regrets tied to having Sir John Kingman stepping in to provide suggestion on the regulators role.
He said: “I think any organisation must be committed to continuous improvement. There are some things in there that if we could have achieved them that would have been better.”
During the committee hearing, Haddrill was asked if the FRC disagreed with any of the recommendations highlighted in the Kingman review.
To which Haddrill said the review should have had more of a focus on the regulators effect on wider society.
Another disagreement regarding the review was about the staff on the board of the FRC, as Kingman discussed concerns over conflicts of interests of them possibly being too close to those they are meant to regulate.
Haddrill commented: “We do sometimes employ people who have had careers spanning two or three firms, so that would rather limit their ability and sometimes we move people around so that they don’t spend years and years working on the same firm because there is a risk of going native there, so we need to work out how to get a bit of operational flexibility.”
By Mishelle Thurai