Examination of Witnesses (Questions 460-479)|
TUESDAY 2 JULY 2002
460. That is helpful. Have you read The Times
article by Miss Lea Paterson, the respected Economics Editor in
(Mr Loweth) Yes.
461. You have read it. In thatvery well
sourced, very well respected Economics Editorthe information
reported refers to sources close to the Chancellor. Before coming
to this Committee you will of course have checked out the contents
of this. Is that correct?
(Mr Loweth) We have made enquiries as to the source
of the comments.
462. Good. That is helpful. I am not suggesting
for a minute that you are responsible for what the copywriters
say or indeed what Miss Paterson says. What I really want to understand
is whether you have briefed yourself on the contents of this report.
(Mr Loweth) I read it.
463. You have made enquiries and you have asked
whether or not this is in fact Treasury policy. You work at the
Treasury, do you not?
(Mr Loweth) Yes, I do work at the Treasury.
464. So you have come to this Committee, which
holds your Department to account through Parliament, and you have
done the necessary research, because I am going to ask you some
questions about it.
(Mr Loweth) Fire away.
465. It was a question. Please answer it.
(Mr Loweth) We have made enquiries but I personally
do not know the source of the comments.
466. It seems to me that we have actually got
a situation here where very well sourced comments are in the public
domain and I want to ask you two questions. First of all, the
suggestion that there will be an enforcement of a change every
seven years of accountancy firms in terms of audit work; rotation
after seven years. Is that what the committee is looking at? Since
it is in the public domain, I think you should do this Committee
the justice of a reply.
(Mr Loweth) You ask whether the group is looking at
it. The answer is yes, auditor rotation is an issue which is being
467. After seven years?
(Mr Loweth) Sir Howard quoted a backstop of a different
468. No, I am asking about what your committee
has looked at. After seven years, yes or no?
(Mr Loweth) We have looked at the wider issue of the
monetary rotation of audit firms and continue to look at that.
469. After seven years?
(Mr Loweth) Seven years is one period which has been
470. And intervening with statutory change to
effect that. Is that being looked at as well?
(Mr Loweth) That is on the agenda but no conclusion
has been reached.
471. It is looking favourite here judging by
this very well sourced article which you have not bothered to
(Mr Loweth) I do not know who the source is.
472. You do not know. You are on the committee
but you do not know. This is in the public domain. You come to
this Committee and you do not have an answer.
(Mr Loweth) I am not responsible for writing articles
in The Times.
473. You are responsible for checking material
out before you come to a Committee of this House.
(Mr Loweth) The interim report of the group is in
preparation at the moment. A full draft has not yet been completed
and no conclusions have been made in that draft.
474. On the issue of the separation between
audit and consultancy work, are you looking at a statutory ban
on that? Yes or no? Someone has briefed that the Chancellor thinks
this is a strong runner. I do not know if you know or even if
you are involved in this decision, but perhaps you could enlighten
us. Is a statutory ban one of the favourites as part of these
(Mr Loweth) It is one of the issues on the agenda
which is being looked at.
475. May I say that we have a headline here
for which neither Treasury Ministers nor Treasury officials are
responsible, I grant you that, "Treasury cracks down on auditors",
but information has been put out in the public domain the day
before this Committee is taking very serious evidence on this
and you are not in a position to go into any detail about the
two principal pieces of briefing which appear in that report,
a statutory requirement that auditors be rotated after seven years,
nor the statutory ban on audit and consultancy work being done
under the same roof. I really do think you should take back the
message to Ministers that either they do not do this kind of thing
or you come better briefed. I should like you to take that back
to Ministers. Will you confirm that you will do that?
(Mr Loweth) Yes.
Mr Cousins: Personally speaking, I should
like to acknowledge the difficulties of your position this morning.
Perhaps the Committee and yourselves are being reminded that as
well as aggressive earnings management, it is possible to have
aggressive news management and that both can be a source of difficulty.
476. You will be aware that the European Commission
has looked into this issue of the independence of statutory auditors
recently and issued a paper on 16 May. In that paper it reports
a clear majority of Member States consider that mandatory external
rotation would at this stage not be a wise decision because there
is no evidence that this improves short, medium or long-term audit
quality. Can we assume from what you said that the UK was then
in a minority when that matter was discussed?
(Mr Grewe) I was more directly involved in the discussions
in Europe. What the recommendation from the Commission is reflecting
in that comment is a discussion around the table on the basis
of what happened in other Member States. The only country in Europe
where there is mandatory rotation at the moment is Italy and the
discussion around the table was very much on whether that had
been considered to be a success. There were very few Member States
who were saying it was a success. That comment you have read out,
if I have the reference correctly, is to the effect that there
was no great positive support around the table for the proposition
that mandatory auditor rotation would improve audit quality.
477. So the clear majority thought it would
not be a wise decision. Did the UK argue that it would be a wise
(Mr Grewe) No, we did not argue that it would be a
wise decision in that context.
478. Did you take any position on the matter
(Mr Grewe) This was officials in an advisory group
to the Commission technically so it is not a Council working group.
We shared some of the doubts about rushing into auditor rotation.
You must remember most of the discussion on that as well goes
back quite a long time. That document was largely agreed in 2001.
479. So at that meeting you discussed your doubts
about the compulsory rotation which has been trailed in the article
to which Mr Ruffley referred a moment ago that the Government
may be going for.
(Mr Grewe) I cannot speak for the article. The arguments
around auditor rotation need to be addressed and assessed. Sir
Howard Davies offered a view on some of those. There were views
from a number of Member States in this advisory group over quite
a long period of time. As a result of that it was concluded that
it should not be in the recommendation. It is down to the Commission
at the end of the day. They took the sense of the Round Table
that they should not on a European basis argue for mandatory rotation
of audit firms. You will see in there that there are separately
provisions on the rotation of audit partners and indeed members
of the senior management team.