Examination of Witnesses (Questions 420-439)|
TUESDAY 2 JULY 2002
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.
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 longerbut
I shall not be pushed more in relation to timingto 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
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
(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
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
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
(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
(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
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
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
(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
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
(Mr Loweth) I think the more radical thing you are
talking about is a matter for the competition authority.