Rip it up and start again
Jon Moulton argues that in overstepping his original remit, Sir John Kingman’s review of the Financial Reporting Council could be storing up even more problems
Following the cumulative impact of a number of clear failures in the auditing world, the collapse of Carillion meant that politicians finally felt compelled to act. Several initiatives were launched to sort out the apparent failure of audit and reporting. Of course, Carillion had a clean Financial Reporting Council (FRC)- mandated viability verdict. I firmly believe no one will ever publish an adverse one for the very simple reason that to do so would precipitate immediate corporate failure.
Now, as I am sure you are aware, I’m not one for handing out unwarranted praise, but the UK does have a pretty good financial reporting system. Failure is actually quite rare, albeit often painful when it comes. In common with many other things, there is a clear trade-off between the benefits of control and costs, diversion and feasibility of control. There has to be an acceptable level of failure. At some stage, the cost of mass inoculation will exceed the benefits of the treatment. Change guarantees cost. So, last year Sir John Kingman was charged with heading up a review of the FRC. He was asked to make it “stand as a beacon for the best in governance, transparency and independence”, and to ensure its structures were “fit for the future”.