Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 420-439)



  420. The Government does have it on its agenda.
  (Mr Rogers) We were here for the earlier session with Sir Howard Davies and I must say that I would very much agree with his comments in the sense that I do not think that the mere fact that the new arrangements are funded by the profession of themselves means that the thing is not independent. The Government would very clearly believe that the Foundation and its associated bodies is independent and that it will act independently of the profession under these arrangements.

Mr Fallon

  421. May I turn to the company law review which started in 1998? You finished the review a year ago now. When are we going to get a draft Bill? What is the delay?
  (Mr Rogers) As you say, the review was launched in 1998, had a three-year life and you may be aware of the large consultation document and the very open and consultative way in which it proceeded. The final report was published last July by the Secretary of State who made warm noises of welcome about the content of the review and said that the detail would be considered with great care and that the next stage would be consultation on draft clauses. It may not be instantly obvious quite how large and complex an exercise this is. The Companies Acts currently comprise some 750 clauses. We hope for substantial simplification, but we are still talking about an immense Bill. The internal complexities are quite something. You will not have to wait very much longer—but I shall not be pushed more in relation to timing—to see the first fruits of the Government's consideration of the review. It is still a substantial exercise to draft a complete Bill. There is a firm commitment to public consultation on the whole thing, so it will take a little time longer before you have a Bill available for introduction.

  422. I do not doubt that it is large and complex. I am sure that is what you and your colleagues were put on this earth to deal with. Given that it started in 1998, when are we going to have a new Companies Act on the statute book? What is your latest forecast?
  (Mr Rogers) I hesitate to give you a forecast I am sorry to say, because the precise timing for introduction of the Bill must be a matter for Ministers and the business managers. It will still be a substantial time I fear because there is no question of the new Bill being introduced in the second session. It will take some substantial further time.

  423. So there is no firm date.
  (Mr Rogers) It would not be right for me to comment on the precise timing. It would be a matter to put to Ministers.

  424. Could I turn to Mr Loweth and the other review which is going on which for convenience we could perhaps call the Johnson-Kelly review. That started in March and had its first meeting in April. Is that right? On 11 April?
  (Mr Loweth) There have been two meetings of the group so far. I am trying to remember when precisely they were.

  425. Two meetings in four months. Is this urgent work?
  (Mr Loweth) Remember that this is a co-ordinating group which has been set up and there is a raft of reviews being undertaken by various bodies underneath, including the Accountancy Foundation and its various subsidiary bodies. We have been working with the FSA as well towards their launching of the review of the listing rules and talking to the Accounting Standards Board about what they have on their agenda. It is really overseeing the work which is being put in place or planned by the individual regulators.

  426. Like the company law review, this is simply work in progress.
  (Mr Loweth) Yes, at the moment.

  427. There was a headline in The Times on Monday, Treasury Cracks Down on Auditors. From what you are saying, that is simply spin, is it not? You have not cracked down on auditors. You are still talking and reviewing.
  (Mr Loweth) I do not write the headlines in The Times. The issues noted in the article are certainly on the agenda and under active consideration, but there are no conclusions yet.

  428. So you are not cracking down on auditors.
  (Mr Loweth) Not yet is the best answer that I can give.

  429. The article does say, "The Times understands that Mr Brown's audit review team", that is the Johnson-Kelly team, "will conclude in its interim report this month". Is that right?
  (Mr Loweth) There is an interim report scheduled to be produced this month, but where The Times got its information about the conclusions I cannot guess.

  430. Will the interim report be published? Will it be supplied to this Committee?
  (Mr Loweth) That is a matter for Ministers to decide. The formal arrangement is that the report will be prepared and sent to the Chancellor and to the Secretary of State for Trade and Industry. It will be their decision as to whether or not the report is published.

  431. The questions I put earlier this morning to other witnesses were that in the wake of the collapse of Enron in January, this does all seem incredibly leisurely. These headlines are spun, but this three- to four-year process of company law review just churns on; even your own audit review group seems to have only had a couple of meetings. Why are you not more urgent about this?
  (Mr Loweth) It does not feel leisurely from where we are sitting. An enormous amount of work is going on and the issues we are looking at are quite complex, even if a number of them have been around for many years. There are widely divergent views on some of the issues. We want to make sure that the review is taken forward as quickly as possible, but that it is also thorough and considers the issues carefully.

  432. On an issue like auditor rotation, which has been discussed this morning, it does not take four or five years for the Government to come to a view on whether auditors should be rotated or not, does it?
  (Mr Rogers) The co-ordinating group is set up, as the name implies, to co-ordinate the work which is going on in the regulators which we all know and have spoken about, the Accountancy Foundation, the FSA and others. These organisations have more or less all been set up at arm's-length from Government for very good reason. Take for example the question of auditor independence. That clearly has a home within the new Accountancy Foundation and on the Ethics Standards Board and the Government is naturally keen that those independent arm's-length organisations do do their own thing, do grapple with the issues which come within their remit. The aim of the co-ordinating group is essentially to ensure that all those organisations are well-informed about the full range of activity, know what is going on across the piece and that is the purpose of the co-ordinating group rather than the conducting of reviews itself. That is not to say that the Government could not take action if it decided that was suitable and necessary at an earlier stage, but quite a part of the work which is in hand, for example the review of the listing rules, about which Sir Howard Davies was speaking, necessarily will take some time. I think that it is expected that the interim report in July will be published, that is expected. That will highlight the range of activity which is going on and will be of interest to this Committee.
  (Mr Grewe) You talked about reviewing auditor rotation for the past five years and that is an issue which has been considered from time to time, indeed I remember a consultation on it in 1989. The decision in the past has been not to go for auditor rotation. It is right in the current circumstances that that is looked at again. It is wrong to suggest that it has been sitting there for five years.

Mr Mudie

  433. This is dismissed as spin and it is just a coincidence that there is a joint committee and they have the two important items on their agenda. Having heard Sir Howard Davies, have this committee dispensed with or even considered the business of a reference to the Competition Commission about the Big Four? You heard the Chairman of the FSA saying words to the effect that he was unhappy; he made clear his unhappiness but he was just unsure of his authority. Have you got that on the agenda? Have you taken a decision on that? If not, why not? You must know whether it is on the agenda or not?
  (Mr Grewe) I am not sure I was in the room when Sir Howard Davies spoke.

  434. Your three colleagues were so they can answer if you cannot.
  (Mr Loweth) There are concerns about the competition element.

  435. No, no. I am just asking a straightforward question. The Chairman of the FSA said that he wondered whether he had the authority to refer the fact that he was unhappy about the Big Four to the Competition Commission. Here is a joint co-ordinating committee between the DTI and the Treasury discussing this very area of work. You must know whether this has been on the agenda or not.
  (Mr Loweth) It has been discussed.

  436. Right. Well done. In the last five years?
  (Mr Loweth) It is not one of the particular issues that the co-ordinating group is looking at. We are aware that it is an issue that we need to talk to the competition authorities about.

  437. That is a whole complication of different attitudes. You are aware of it. It has been discussed. Have you taken a decision on it?
  (Mr Rogers) Forgive me, I am not quite sure. Are you talking about the reduction from the Big Five to the Big Four?

  438. Richard, you stay out of it for a second. David knows what I am talking about. Come on, I am just asking. Have you taken a decision on it?
  (Mr Loweth) No, not yet.

  439. Is there any likelihood? Why not? If you get down to a less drastic, less radical form of action, you must have said that is too radical, we will do rotation. Or are you going to take a decision on rotation and then come back to something more radical?
  (Mr Loweth) I think the more radical thing you are talking about is a matter for the competition authority.

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