Queen’s Speech — House of Lords, 2020-01-09
Topic: Domestic Commerce
John Wakeham (Conservative, Centre-right): My Lords, the last few times I have spoken in this House, I have been preceded by a bishop. I wonder if those who draw up these lists have been trying to send me a message. I enjoyed, as I always do, the speech of the right reverend Prelate the Bishop of Portsmouth. I live just outside his diocese I am very pleased that the Government have made clear that they intend to develop proposals for company audits and reporting. First, I should declare an interest. I am a chartered accountant and have been for so long that they do not even ask me to pay a subscription any more. I used to do audits and worked in my youth in one of the major audit companies, but that is all very long in the past The Government are right to develop these areas and include a stronger regulator with powers necessary to reform the sector. It is clear that there have been a series of serious financial crashes of substantial companies, in which their reported information was seriously in error. This is bad for everyone but particularly for the employees of the company, its suppliers and other creditors Public trust in business is essential and the Government commissioned three independent reports in 2018: the Independent Review of the Financial Reporting Council led by Sir John Kingman, the Competition and Markets Authority’s study of competition in the audit market, and the independent review into the quality and effectiveness of audits led by Sir Donald Brydon. These reports must have convinced everybody who had any doubt that the age of the audit report produced for the benefit of shareholders and required to show a true and fair view was old hat and had been for many years. Of course, shareholders are important, but so too are employees, creditors, banks, the tax authorities and many others. A redefinition of audit and its purposes is required and, as Sir Donald says, this can only be done by legislation However, I have one or two points which I hope the Government will take into account before proceeding with the legislation. First, it should never be forgotten that the accounts of a company are the responsibility of the directors. Auditors may miss things or not get things right, but the prime responsibility rests firmly with the directors. Steps need to be taken to bolster this. I would increase the responsibility of audit committees, and particularly the chairman of an audit committee who, in a big company, should be sufficiently experienced and qualified to bring to the attention of the directors and the auditors matters which require careful and expert consideration and judgment. These reports are very helpful and, as Sir Donald Brydon sets out, many important improvements need to be made However, there are one or two matters on which the Government need to be cautious. I am not fully persuaded that auditing needs to become a separate profession. Wide experience is needed if a company is to get its accounts and reporting right, but so is that experience necessary to the persons working on these matters in a company. Of course, there need to be proper rules about conflicts of interest and auditor independence is essential. I would also not want to be too prescriptive about the frequency with which auditors are required to be changed. I ask the Government to look at some of the overseas experience of this, where new auditors sometimes make mistakes in their first years which would not have been made previously. I much agree that there needs to be a fresh and wider redefinition of audit and its purpose, which covers much more than just financial statements. I very much look forward to seeing the Bill which the Government are to bring forward.