Auditors put to the sword
TOGETHER, the ramshackle policing of the audit profession by the Financial Reporting Council (FRC) and the conflicts of interest in the work that accountants do, has been a disgrace.
In recent times bad auditing and sloppy governance brought us the Carillion disaster, the Jeff Fairburn mess at Persimmon and countless audit failures, from Northern Rock and HBOS to Tesco and Rolls-Royce.
Tough minded L&G chairman (and former mandarin) Sir John Kingman did nothing to spare the blushes of the FRC and the hapless leadership of chairman Sir Win Bischoff and departing chief executive Stephen Haddrill. A weak-kneed response to auditing foul-ups and a supine approach to mandating better behaviour of directors undermined faith in capitalism, leaving the door wide open to Corbynism. No wonder Business Secretary Greg Clark lost no time in scrapping the whole kaboodle.
The response of Kingman was on the money. Bring in bulldozers and flatten the present structure, replacing it with a statutory regulator, the Auditing, Reporting and Governance Authority.
No longer will the audit firms be able to hide behind self-regulation and at last we may have a fit for purpose outfit when it comes to probing faulty company behaviours. There is no point in claiming to have the best governance regime in the world if it is not properly enforced and if companies and audit firms don’t quake when the investigators kick down the doors.
As worrying as the conflicts of interest inside audit firms is that inside the FRC itself, where a narrow recruitment policy might have former KPMG accountants probing their recent colleagues.
An additional report by the Competition and Markets Authority calls for Chinese walls between the audit and accounting functions of the Big Four. It should have gone the whole hog and forced total separation, creating a more competitive marketplace. Embarrassment for the bean counters is not over. London Stock Exchange boss Donald Brydon is tasked with redefining the role of audit. A good idea but an uninspiring choice of chairman in Brydon who foolishly sought to flog off the LSE and became embroiled in an unseemly boardroom spat.
Keep cheerful
ONLINE retailer ASOS has been regarded as the great hope for Britain’s struggling fashion market.
So the firm’s car crash statement warning of slower sales growth, lower margins, a fall in profits and lower capital spend is as an enormous setback. The shares, down almost 40pc, are a dose of reality for online retailers which have enjoyed a charmed life.
Coming hard on the heels of Sports Direct boss Mike Ashley’s warning of an ‘unbelievably bad’ November and weakening footfall numbers, it is easy to be gloomy about the High Street. Shares in big clothing beasts Next and M&S have also suffered a chill.
Groans from retailers confronted with the Amazon challenge and climbing business rates have been loud. Added to this doleful mix has been Brexit uncertainty.
At the end of the year, when quarter day rent bills arrive, it is always awful for retailers. Among those vanishing down the plughole have been Woolworths, Comet, Maplin, BHS and Toys R Us. Before anyone starts to cut their wrists, a word of caution. It is standard practice in the run-up to the holidays to warn of catastrophe but when the data is finally in we often find it has been the best Christmas ever. As far as demand is concerned there are more people than ever in work to spend money, wages are rising and mortgage costs limited by low interest rates.
Cash is being splashed in different places. The ‘Big Four’ supermarkets are not just grocers but sell everything from clothing to homewares and captured big market shares. No frills retailers such as Primark and overseas owned chains, notably Zara, have a big following. Then there is Amazon, which never gives us the full picture. At a recent visit to my local Post Office it was hard to get through the door amid the Amazon boxes. Yes, it is a tricky time for the High Street and some online sellers. But don’t write off Christmas trading yet.
Power play
THE Tory price cap on energy companies is an unfortunate interference in free markets. But it has produced a beneficial outcome in that the proposed merger between energy players SSE and Npower is off. It would have led to the creation of a giant retail power group and reduced consumer choice.
Five dominant players would not be better than six.