DRAFT INTERNATIONAL ACCOUNTING STANDARDS (DELEGATION OF FUNCTIONS) (EU EXIT) REGULATIONS 2021

Alan Whitehead Excerpts

Thursday 15th April 2021 General Committees

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I ought to indicate immediately that we do not intend to oppose this regulation. Indeed, we see the need to ensure that the international standards, which have now been put in place across the world, are properly placed into a UK context, particularly given the UK withdrawal from the EU. There is also a context in terms of an independent body that can bring those standards forward and into the mainstream of UK accounting life, in good order, with confidence behind it so that the UK can be seen to be playing its part in the international structure that is now the norm for those accounting standards.

However, I have a couple of questions for the Minister about the process by which this has been set up. I thank him for going substantially beyond the explanatory notes in his introductory comments this morning; he has fleshed out one or two things that I wanted to focus on.

My concerns are that the SI itself, by way of a preamble declaration, states that:

“It appears to the Secretary of State that—

(a) the UK Endorsement Board is able and willing to exercise the functions transferred by regulation 2 of these Regulations, and

(b) that body has arrangements in place”,

and so on. I suppose the Secretary of State would say that, since it was the Secretary of State who very recently indeed created the UK Endorsement Board, as the Minister has set out. It is difficult to see how the Secretary of State could know that this brand new board is indeed

“able and willing to exercise the functions”,

as it has no track record and it has not undertaken any significant activities.

The only activity of the UK Endorsement Board so far has been to bring itself into being, and that has been done by a rather curious route. First, the chairman was appointed—by the Secretary of State, I assume—and the chairman then essentially constructed her own board. That is not absolutely normal practice: the board usually elects the chairman, rather than the chairman electing the board, but perhaps that is a part of the process of bringing these things into being.

Then we have the question of the independence and accountability of the board; I wonder to whom exactly the board is accountable. It is barely accountable to Parliament. One could say that it is perhaps rather more accountable to the accountancy profession, as most of the members of the board who have been appointed are accountants. The potential danger for the board is that, in a circular way, it reflects its own view of the profession on the profession itself. I would like reassurance from the Minister that that, in his view, will not happen as a result of the work of the endorsement board as it goes forward.

The other matter, as far as independence is concerned—I always look for it when such things happen—is how the board is funded. Has it got independent pay and rations, and can it guarantee the funding that the Minister elucidated was £2 million or so?

[Paul Scully]

It is £2.9 million.

--- Later in debate ---

[Dr Whitehead]

Okay, £2.9 million. How is that actually guaranteed? It turns out that it is to be sorted out and guaranteed through a subsidiary company of the FRC, which, again, is a slightly unusual procedure for guaranteeing pay and rations and organisational independence for such a body. It is especially unusual in view of the fact that the FRC is about to be abolished. It is to be replaced by the interestingly named ARGA—the Audit, Reporting and Governance Authority, which does not exist yet. We are still awaiting a paper promised for the spring of 2021. Cold weather notwithstanding, I am assured that it is now the spring of 2021, so we await the detail of what the new body is expected to do, how it will be set up and organised, at what point the FRC ceases to exist, and how the functions of the FRC will be transferred to ARGA.

There is a particularly important element: the guaranteed transfer of financial independence from that subsidiary of the FRC to, I presume, something relating to ARGA at the point when FRC ceases to exist. Can the Minister give a brief assurance that there will be no hitches and that there will not be any necessary further secondary legislation to secure the proper transfer of the financial arrangements relating to the board from the subsidiary of the FRC to a possible subsidiary of ARGA? I think he will agree that this looks a little rickety at the moment.

As I have said, the really important international regulations will be placed in the hands of a body that has only just come into existence and that is funded by a body that is just about to go out of existence. I hope the Minister can give us some assurances about the solidity and continuity that we should be able to expect from such an arrangement for the future. I am sure he will be able to satisfy us on those matters this morning.