Accountants see red at watchdog’s latest plan for rules change

Mark Kleinman
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ACCOUNTANTS aren’t supposed to be this interesting. After the regurgitated controversy surrounding KPMG’s auditing of HBOS, the bust mortgage lender, a meaty row is brewing between the profession’s leading industry body and its regulator.

Under plans tabled by the Financial Reporting Council (FRC) earlier this year, companies will be forced to warn of material uncertainty about their going concern status unless directors can express confidence about their prospects during the “foreseeable future,” meaning an entire economic cycle.

That has not gone down well with the Institute of Chartered Accountants in England and Wales (ICAEW). In a scathing submission to the FRC – a copy of which I’ve seen – the accountancy body warns that British companies’ ability to finance themselves in international capital markets will be decimated if the regulator’s proposals are implemented.

“As growth continues to flat-line, there could not be a worse time to be forcing businesses unjustly to disclose that they are ‘not a going concern’,” it says.

“Lenders have never been willing to give a high level of assurance that they will continue to provide finance, so directors will be forced to disclose this uncertainty in accordance with the [FRC] guidance. Such disclosures will undermine lenders’ confidence to continue to provide finance.”

The new rules would have a particularly draconian effect on small and medium-sized businesses, the ICAEW argues, by increasing the reporting burden on SMEs and undermining their competitiveness.

The ICAEW’s points are legitimate. George Osborne once boasted about the decision to enshrine within the remit of Britain’s new banking regulators an obligation to consider the impact of their actions on the wider economy. The chancellor should adopt the same stance with the FRC’s misguided proposals.

Like those who frequent Sunday league football pitches and cheap karaoke joints, public sector pension administrators have often borne the unwanted tag of amateur practitioners of their trade.

So step forward the London Pensions Fund Authority (LPFA), which is responsible for supporting the retirement of around 250,000 members who have worked for more than 200 separate employers.

Under the stewardship of Edi Truell, the financier behind Duke Street Capital and Pension Corporation, the LPFA is attempting to dispel that oft-deserved impression. Subject to the sign-off of Boris Johnson, the London Mayor, the LPFA will shortly unveil a trio of heavyweight board members.

They include Abdallah Nauphal, chief executive of Insight Investment, the asset management group, and Dermot McMullen, a former Bank of America executive and a trustee of one of the Wall Street bank’s pension funds.

Truell is no shrinking violet himself. One of his first decisions since taking on the role was apparently to terminate an investment mandate with Brevan Howard, the hedge fund manager, over transparency concerns.

Is the gradual rapprochement between institutional investors and the City’s investment banks morphing into a full-on love-in?

It’s too soon to jump to that conclusion, but the evidence from the current crop of initial public offerings (IPO) suggests that prospective issuers are taking heed of repeated warnings against supersized bank syndicates.

Following the listings of Crest Nicholson and Esure, Cinven, the buyout firm, has just appointed two additional banks to work alongside Bank of America Merrill Lynch and Morgan Stanley on the £1bn flotation of Partnership Assurance.

Insiders say KBW and Panmure Gordon will work as co-lead-arrangers on the IPO, which is understood to be progressing well partly thanks to Partnership’s “rock star CEO”, Steve Groves.

Managing with “only” four banks on board is one way of endearing the boss to investors.