The chair of the House of Common’s work and pensions committee Frank Field has challenged The Financial Reporting Council (FRC) on why the full report on PwC’s auditing of BHS has still not been published in an open letter.

One of the Big Four, PwC, was fined a record £6.5m by the FRC in June and a senior partner was also fined £325,000 and given a 15 year ban from any further auditing work.

Field’s opens the letter to the FRC thanked them for the investigation into PwC’s audit report as well as their rejection of ‘Taveta’s subsequent attempts to block publication of the associated report.”

BHS’ former owner Sir Phillip Green’s holding company Taveta Investments lost a legal case earlier in 2018 regarding the FRC’s ability to release the full report. It was concerned that the report could damage the reputation of Taveta, including its directors and employees.

Field posed the question of how the FRC will proceed on the matter of publishing their report on the case of PwC and BHS.

During the legal case the FRC had commented that Taveta was not regulated by the FRC and therefore was not a focus of the investigation. Field addressed this in his letter and said: “It highlights a weakness in the FRC’s powers that was also exposed as part of the inquiry into Carillion; the FRC has no ability investigate individuals that are not chartered accountants.

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“So even if the FRC did find fault with the actions of the individual directors in the preparation of the accounts, they were powerless to take action against most of them.”

Furthermore Field posed a significant question based on a joint committee report into Carillion: should the FRC’s powers be extended further to include the punishment and investigation of all directors ‘exerting financial influence over financial statements’ who are part of the same investigation.

Field asked: “Would the FRC agree that this would be a welcome extension of their powers?” He added: “Would the FRC have opened investigations into other members of senior management if they had the ability to do so?”

The FRC have yet to comment on Field’s letter to them. A spokesperson for the FRC has said that it planned to respond to Mr Field “in due course.”

A reformed FRC

The UK Institute of Directors (IoD) said that the recent corporate failures have highlighted the need to review of the purpose of the statutory audit and how it is overseen by the regulator in its response to the ongoing review into the FRC.

This review was launched in April by the government, and led by Sir John Kingman. The review is due for completion at the end of 2018 and will assess the FRC on issues such as governance, impact and their powers to ensure that it is transformed and ready for the future.

The IoD has said an independent Corporate Governance Commission should be established. The purpose of this would be to oversee the UK’s corporate governance framework so that the FRC could solely focus on its core task of improving company audits.

In its submission to the Department for Business, Energy and Industrial Strategy consultation on the independent review of the FRC, the business group proposed that the UK’s governance and stewardship codes be administered by an independent body with close links to business and investors, rather than simply being an ‘add on’ to an accounting regulator.

The IoD added that the new commission would engage with the industry to create a greater accountability and transparency of the UK’s corporate governance framework.

This would transform the UK Corporate Governance Code, it said, making it more transparent with clearer lines of accountability, rather than being subsumed by a large regulator whose corporate governance is just one concern amongst many.

IoD’s head of corporate governance Dr Roger Barker commented: “The FRC has for many years done a good job acting as the keeper of the UK’s corporate governance code, but we feel its centralised decision-making structure is not conducive to the differing regulatory approaches needed for governance and stewardship on the one hand, and statutory audit on the other. There must be a clear distinction between being robust on audit quality, while continuing to nurture the UK’s much admired principles-based corporate governance regime.”

Furthermore the IoD has also proposed an industry led professional standards board who will be tasked with the upholding high standards of director competence and continuing professional development. 

By Mishelle Thurai