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Ashton, Joe

Barnes, Harry (Derbyshire NE)

Barron, Kevin

Brown, Ron (Edinburgh Leith)

Campbell, Menzies (Fife NE)

Campbell, Ron (Blyth Valley)

Campbell-Savours, D. N.

Carlile, Alex (Mont'g)

Clwyd, Mrs Ann

Corbyn, Jeremy

Cousins, Jim

Cox, Tom

Cryer, Bob

Cummings, John

Cunliffe, Lawrence

Cunningham, Dr John

Dixon, Don

Ewing, Mrs Margaret (Moray)

Fearn, Ronald

Flynn, Paul

Fraser, John

Galloway, George

Gilbert, Rt Hon Dr John

Golding, Mrs Llin

Hardy, Peter

Haynes, Frank

Hinchliffe, David

Home Robertson, John

Hughes, John (Coventry NE)

Illsley, Eric

Jones, Barry (Alyn & Deeside)

Kirkwood, Archy

Livsey, Richard

Lofthouse, Geoffrey

McCartney, Ian

Mahon, Mrs Alice

Meale, Alan

Michael, Alun

Michie, Bill (Sheffield Heeley)

Morris, Rt Hon A. (W'shawe)

Parry, Robert

Patchett, Terry

Pike, Peter L.

Powell, Ray (Ogmore)

Prescott, John

Primarolo, Dawn

Salmond, Alex

Skinner, Dennis

Spearing, Nigel

Steinberg, Gerry

Vaz, Keith

Wall, Pat

Wallace, James

Welsh, Andrew (Angus E)

Tellers for the Noes :

Mr. Michael Welsh and

Mr. George J. Buckley.

Question accordingly agreed to.

Bill, as amended, (in the Standing Committee), again considered.

Mr. Redwood : I should explain to the hon. Member for Workington (Mr. Campbell-Savours) that Sir Ronald Dearing could make changes to accounting standards once the council is up and running. There is also a legal requirement to reveal compensation to directors who lose office, and that would appear in the accounts following the events in question.

Amendment No. 258 will delete clause 198. As most accept, the clause does not work in its present form and must either be deleted or substantially revised. Clause 198 is directed at enabling the Secretary of State to delegate his power to order accounting provisions in the Act by regulation through a statutory financial reporting council. I acknowledge that the new clause does not require the Secretary of State to delegate his powers. None the less, it would be wrong in principle for the Government to support the inclusion of such a provision unless they thought it right to devolve such powers. Therefore, I ask the House to remove it from the Bill.

Mr. Campbell-Savours : In the light of that reply, does the Minister think that legal action should be taken in the case of a company that refuses to reveal how much was paid? What is the position legally?

Mr. Redwood : There is already a legal requirement that the information be published in the report and accounts concerning the year in which the events took place.

Mr. Hanley : I should declare my interest as the parliamentary adviser to the Institute of Chartered Accountants in England and Wales. I add to the words of welcome to my hon. Friend the Member for Wokingham (Mr. Redwood). He may feel as if he has already been in the post for years and years. He brings a wealth of experience to his task, which he has already shown this evening, and he has approached his task in a most

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constructive way. It is a great shame that activities completley unconnected with the Bill are proving more than a hiccup.

10.15 pm

I welcome the success of my hon. Friend the Minister in securing the appointment of Sir Ronald Dearing. We are all extremely fortunate to have secured him for such an important task. We look forward to observing the way in which he tackles the job in the months ahead. Paragraph 7 of schedule 1 introduces a requirement for companies to disclose and explain any material departure from accounting standards. That requirement is imposed in the explanatory foreword to "Accounting Standards". Its incorporation in statute implements one of the recommendations of Sir Ronald Dearing's report.

New paragraphs 36A(2) and (3) bring into statute further requirements of the explanatory foreword. These are to disclose the financial effects of any departure from standards, unless this would be impracticable, and to explain any non-disclosure. Unfortunately, Government amendment No. 10 removes these requirements. I feel that that is a step backwards. If the requirements of the explanatory foreword are deliberately removed from the Bill while others are left standing, it may be difficult to enforce compliance in future. The status of accounting standards will thereby be reduced. Users of accounts will also be deprived of helpful information that would enable them to calculate what the figures would have looked like had the company followed accounting standards.

It follows from what my hon. Friend the Minister said that he should consider in the months ahead--I do not feel that this is a matter that should divide the House--whether the extra information, which according to "Accounting Standards" should be provided for shareholders so that they are able to consider whether the departure was valid and to quantify exactly what the accounting might have been had accounting standards been adhered to, should be made available. I feel that the information is important and should be included in future. Opportunities for comparisons with other companies will be reduced if the requirements are removed. After all, it is the removing of disparity of accounting treatment that has created the accounting standards programme. The removal of disparity is best able to be seen if we can quantify the departures from accounting standards.

Mr. John Garrett : The Opposition also welcome the appointment of Sir Ronald Dearing. He has been a most distinguished public servant both in the Civil Service and as the head of the Post Office. I understand that he is also the chairman of the Durham development corporation. That must be another reason for giving preferment. The amendments embody our proposals that the reasons for any departures from accounting standards in company accounts must be stated in the annual report and accounts. They delete, however, the necessity to state the financial effects of departures. We fear that in the long run this may prove to be a weakness. In the explanatory foreword to "Statements of Standard Accounting Practice" it is required that the auditors should state the financial effects of departures if that is the decision of the accounting standards board. On the whole, it will be a weaker requirement than we would have wished for, but at least the amendment goes a significant way towards opening up the whole question of departures from

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accounting standards. We are willing to put up with that inconsistency until Sir Ron, in the fullness of time, produces new directives.

Amendment No. 258 deletes the amendment successfully proposed by the hon. Member for Beaconsfield (Mr. Smith) about the formation of the Financial Reporting Council. As the Minister said, the amendment was faulty because the schedule accompanying it, which set out the constitution of the FRC, was not accepted by the Committee. The hon. Gentleman's proposals were weaker than those that we had in mind, which were for a statutory body concerned with the supervision both of accounting standards and the auditing profession--something that will come in the fullness of time. We were not entirely sold on the amendment. Eventually there will have to be some regulation covering the auditing profession. It is a large, multinational business ; it no longer consists of a cottage industry with small groups of Scottish accountants, as it did when it started the better part of 100 years ago. They are enormous companies, they do not provide accounts, they are secretive in the way that they go about their business and we know little about them.

The appointment of Sir Ron is a reasonable start and we wish him well. We look forward to--

Mr. Skinner : I am just beginning to piece together what my hon. Friend has been saying about accounting and auditing. As the Bill began its passage some time ago, before the Ferranti--International Signal and Control fraud with the £200 million rip-off by the company and Mr. James Guerin, I wonder whether the new provisions--and my hon. Friend is not too happy with them--will help such companies to ensure that they are not ripped off. My guess is that some taxpayers' money could be used, through inflated contracts or some other method, to assist those companies through their problems. Can my hon. Friend inform us whether the conditions for auditing and accounting would fit the bill or whether the passage of time means that they need to be even stronger?

Mr. Garrett : My understanding is that the case currently being investigated by the serious fraud office relates to the gullibility of the Ferranti board in connection with certain contracts entered into by a company that it acquired in another country. To that extent, I do not think that the question of accounting standards is involved. In the initial stages, we cannot put these issues before Sir Ron and his Financial Reporting Council.

Mr. Skinner : I understand that a set of accountants were advising Ferranti, that those accountants were resident in this country and that they told Ferranti that ISC had a clean bill of health. If that is the case, those accountants were seriously at fault in telling Ferranti that it could go ahead. If that is proved by the investigations of the serious fraud office, it shows that there is something wrong with the way in which so-called professional auditors go through a company's books very quickly and enable a company, which attracts a great deal of taxpayers' money through defence contracts, to be milked by a bogus company in America. A British set of accountants, albeit acting at a multinational level, gave Ferranti very bad advice.

Mr. Garrett : My hon. Friend is putting me in the position of a Minister having to answer for the conduct of Government policy on the question of accountants--

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Mr. Skinner : My hon. Friend will be in that position soon.

Mr. Garrett : Perhaps I will, but these matters should be addressed to the Minister. Perhaps my hon. Friend can ask his questions in a subsequent debate that will arise shortly. I cannot tell him whether the valuation of ISC was carried out by auditors at the request of the Ferranti board and whether those auditors behaved improperly. Perhaps the Minister has a view on that matter as it has been referred to the serious fraud office. I cannot pass an opinion on that.

I think that, eventually, the council that Sir Ron will head will have to take into account the conduct, behaviour and practice of auditing in general, in addition to the supervision of accounting standards with which it is presently charged. However, that is not the subject of this part of the Bill. If my hon. Friend wishes to raise the question of fraud, there is another part concerned with investigation : no doubt the Minister will be able to give an answer when we deal with that. I hope that that puts my hon. Friend's mind at rest for the time being.

Mr. Skinner : The more I think about it, the more I recognise the Bill's importance in connection with another company in Britain that has run into serious trouble connected with homes. The ex-chairman of the 1922 Committee, Sir Edward du Cann, was involved : he was a non-executive director who ran away from the firm very quickly when he could see the so- and-so hitting the fan, as did many others. It seems to me that the auditors are not doing their job very well. I wonder whether my hon. Friend believes that these clauses, and Ron Dearing's appointment, can ensure that those abscesses on the body politic--or the company politic--can be cleaned up by the new provision.

I hold the simplistic view that they cannot be cleaned up. This is all about making money, exploiting someone else, doing it as fast as possible and using a shady set of accountants to get it through. What worries me is whether, when the legislation is passed, it will be any good : will we have sorted out the accountants, or will it be in the pocket of companies which seem not to pay a blind bit of notice to all the corruption that is taking place in the City?

Mr. Garrett : The short answer is no. The Financial Reporting Council and its chair, Sir Ron Dearing, will not have any jurisdiction over auditors or auditing. What they are trying to do is improve the quality of information given to company shareholders in company accounts, under a set of rules that govern the way in which such things are calculated. The idea is to clarify company accounts. That is the relatively narrow front on which we are operating at present.

My hon. Friend invites me to go further. The point behind our proposal that the council should cover not only accounting and accounting standards but the conduct of the auditing profession would, I think, enable at least the public--the investors, consumers, banks and creditors--to establish rather better the performance of the auditing profession, which is relatively unregulated and very secretive.

Mr. Hanley : It is self-regulation.

Mr. Garrett : The spokesman for the Institute of Chartered Accountants says that it is self-regulation. That is not satisfactory, as we know from the number of actions

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taken against auditors. I believe that the Government themselves are taking action against the auditors of De Lorean. These scandals are becoming more common, and this part of the Bill does not address them.

Mr. Tim Smith : I, too, support and welcome the appointment of Sir Ron Dearing as chairman of the Financial Reporting Council. It is now 13 months since he published his report on the making of accounting standards, and I commend the Department on the way in which it has responded all the way along--first with its consultative document in January, and now with Sir Ron's appointment.

There is scope for improvement in the quality of financial reporting. The hon. Member for Norwich, South (Mr. Garrett) is quite right : the difficulty in the past has been securing compliance with accounting standards when the whole process was largely one of self-regulation. The great step forward was the new paragraph 36A, which appears on page 200 of the Bill and states for the first time in statute law that companies must state whether accounts have been prepared

"in accordance with applicable accounting standards".

It goes on to say :

"particulars of any material departure from those standards shall be given."

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As a result of the change that was made in Committee, not only the particulars but the reasons will now have to be given. My hon. Friend the Minister explained why he could not go all the way and accept the full import of that. I understand that there is concern that we would be giving accounting standards legal form. Giving them legal recognition is a great step forward, and, in due course, with the new Financial Reporting Council, under Sir Ronald Dearing's chairmanship, that will lead to an improvement in financial reporting, which is the subject of our debate.

10.30 pm

Of course I am sorry that the Government could not accept my proposal that the Secretary of State should send a delegation to the FRC, but I recognise that the clause as drafted is defective because it should have been accompanied by a schedule, so I understand why my hon. Friend has decided that it should be left out.

I said in Committee that, in the long run at any rate, it might be sensible to ask the same body to look after, supervise and regulate not only accounting standards but the content of company accounts. In practice, the dividing line between the two is not particularly clear cut. Perhaps my hon. Friend should consider the possibility of giving the same body responsibility for the entire contents of a company's accounts.

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Mr. Cousins : I add my congratulations to Sir Ronald Dearing on his new appointment. Many of us remember him at the DTI in Newcastle as regional director for the Northern region back in the 1970s. He was subsequently exiled to the Post Office and we welcome his return to a more normal existence and to the position he holds in County Durham. My personal hope is that he will end his career as a member of Durham county council, which, as some of us recognise, is the most august elected body in the United Kingdom.

The Minister is making a grave mistake in attempting to unpick the compromise that was made in Committee. He would have been far wiser had he fleshed out the free-standing clause giving the Financial Reporting Council the power that he is now removing. We all accept that the necessary additions were not made to make the clause operative. Nonetheless the Minister had that option and it is a great pity that he did not exercise it. It is quite certain that when the Financial Reporting Council under the leadership of Sir Ronald Dearing gets into business many of the pressures towards rationalising the mixed economy of regulation in accountancy and accounting standards will prove quite unstoppable.

The current position is extremely confused. At various points in the Bill review bodies are set up by statute which have, if not legal force, quasi- legal powers which substitute for previous powers that were actionable in court.

Tonight's attempt to unpick the compromise made in Committee will prove unfortunate. It does not get the Minister off to a particularly good start, although, obviously, we wish him well in the short time that remains to him and his colleagues. This matter will not stand still. The attempt to reverse the process that started in Committee of providing a properly- regulated authority over accountancy, accountancy practices and accountancy standards cannot be held up. The Government's amendment is particularly unfortunate as it does not reflect the spirit of our discussions in Committee. If the Government's amendments are carried tonight, the Bill will be an even bigger mess containing various streams of thought about how to deal with the problem, none of which is carried to a perfect, well- elaborated solution.

It is a great regret that the Government have chosen to unpick the work carried out in Committee. I do not believe that their attempts to hold up the irresistible movement towards proper regulation of accountancy and accounting standards will be effective, and in a very short time we shall be back here discussing precisely the same problems with a further trail of incidents such as the one to which my hon. Friend the Member for Bolsover (Mr. Skinner) referred tonight, and we shall have to consider the matter again. It would have been far better and wiser if the Minister had rolled with the punch and reflected the consensus of the Committee by accepting the amendments that were passed with the support of Conservative and Opposition Members. To attempt to unpick the compromise that was achieved in Committee is to retreat on something that ultimately will prove unstoppable.

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