The Numbers Must Add Up Next Time, Warns the Footsie's First Lady; INTERVIEW BARONESS HOGG FINANCIAL REPORTING COUNCIL; Auditors' Scourge and Governance Guru Calls for Higher Standards as She Prepares for a 'Gap Year' from the City

The Evening Standard (London, England), February 28, 2014 | Go to article overview

The Numbers Must Add Up Next Time, Warns the Footsie's First Lady; INTERVIEW BARONESS HOGG FINANCIAL REPORTING COUNCIL; Auditors' Scourge and Governance Guru Calls for Higher Standards as She Prepares for a 'Gap Year' from the City


Byline: James Ashton City Editor

THE sign of a good sheriff is to know when to trade in the badge, saddle up and ride off into the sunset. Baroness Hogg has something far more ladylike in mind: the first woman to chair a FTSE 100 company has dressage lessons planned for when she gives up as chairman of the Financial Reporting Council in April.

What she calls her "gap year" might even see the former business editor of The Independent pick up her pen again -- although she admits she was never any good at shorthand. If she does, Hogg, 67, might want to jot down what she has achieved at the FRC, the accountancy regulator that also sets the corporate governance code for boardrooms.

"I always say it was like one of those 18th-century paintings of battlefields where there are a lot of people doing something over there and some more people doing something over here and a rather bemused person sitting in the middle," she says, of the organisation she first joined nine years ago.

In blending a federation of committees emerging from industry self-regulation under a single umbrella, the FRC has raised its profile, such as by weighing into the debate on audit retendering before Brussels or the Competition Commission pronounced. Now its model is being examined closely by former CBI chief Sir Richard Lambert as he creates a commission for banking standards.

"What we have in our territory is a recognised profession with membership," says softly spoken Hogg, in pearls and with wavy, bobbed hair. "What they are struggling with in banking is there isn't anything similar and its jolly difficult to see how there could be because banking is so diverse."

On her watch, the FRC has had hits: the fine levied on EY and its audit partner for failings linked to the collapse of Christmas hampers firm Farepak, a bumper PS14 million penalty for Deloitte for its work on defunct carmaker MG Rover and forcing engine-maker Rolls-Royce to restate its numbers.

But there have also been misses, such as probes that drag on for five years or more. The overwhelming feeling is that the Big Four auditors got off lightly for their part in the banking crisis. A recent call to improve the quality of banking audits sounded suspiciously familiar from the last time it was made. "I think [auditors] are listening and I think everyone continues to raise their sights," says Hogg, who will be succeeded by Lloyds chairman Sir Win Bischoff. "What we are saying is not that nobody is trying, but there is more to do and we keep on applying the pressure.

"The thing about the financial crisis is there is no good news in it for auditors. Either they weren't doing their job or they were, but the job was not what people thought it was."

The FRC's problem is it must wait its turn. It may investigate KPMG's audit of scandal-hit Co-op Bank, but only after the Prudential Regulation Authority, Financial Conduct Authority and others have done so. Similarly, it can't look into the audit of HBOS -- another KPMG client -- until the long-awaited FCA report into the bank's 2008 collapse has been published. Hogg feels the frustration.

"Slow justice isn't good justice," she admits. "To some extent you are stuck with it, you can't have two regulatory bodies going head-on with the same facts. Can we get better at synchronisation so there is less delay? Unequivocally yes. Have we got better since reform? Unequivocally yes."

But how tough can the FRC really be on auditors? The collapse of Enron took Arthur Andersen down with it, reducing the global audit firms from five to four. One less would paralyse choice for blue-chip companies, which are being encouraged to switch more regularly firms that advise them. …

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