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September 26, 2023

Financial Reporting Council’s Skipper Is Jumping Ship

Stephen Haddrill, beleaguered chief executive of the Financial Reporting Council, the audit regulator in the United Kingdom, is reportedly to debark by the end of the year.

No surprise. Haddrill has been a marked man since early this year, his agency targeted in Parliament as “toothless,” “useless,” and “ineffective” amid an outbreak of outrage over the collapse of the construction group Carillion, the massive hole revealed in the pension fund of BhS with its collapse post-sale for £1 by Sir Philip Green, and its own endless inquiry into HBOS.

Stephen Haddrill

A raging tempest of official inquiries into the provision of financial statement assurance for large public companies extends to both the market-dominating position of the Big 4, who collectively audit all of the FTSE 100 and 97% of the FTSE 350, and the structure and efficacy of their oversight.

“Thrown under the bus” would be apt.

Or—to provide historical perspective for those curious about the inevitable back-story—consider that the modern audit function was invented in the Victorian era, while ships of Her Majesty’s navy were enforcing Pax Britannica by flying the Union Jack around the globe. To invoke the nautical metaphors:

  • Is Haddrill making his jump ahead of an inevitable walk of the plank or swing from a yardarm?
  • Is he merely the first rodent to debark a leaky and sinking ship?
  • Are the FRC’s own proposed “solutions” yet further exercises in re-arranging the Titanic’s deck chairs?
  • Or is Haddrill just an earnest but hapless cabin boy, while a mess of squabbling brass-hats blithely sail toward the rocks while resolutely steering by the wake?

If none of these will serve, perhaps the sardonic observation of Voltaire’s Pangloss, that it may be necessary to shoot the occasional admiral, “Pour encourager les autres.”

That is because the degree of justifiable criticism and public distress over the fitness for purpose of the current Big Audit model remains unmatched by clear-eyed awareness of the lack of either achievability or beneficial impact on the perceived issues.

That is, concerns over market competition, concentration, and audit quality have elicited a “wish list” that includes splitting up the Big 4, forcing them to divest their non-audit services, mandating joint appointments, turning over the auditor evaluation and selection process to official authority, and even forcing reduction of the Big 4’s dominant market share.

But as examined here in an ongoing series begun last month, there is nothing good that can come of any of these, but only disruptive and ineffective adverse consequences. Nor will poor Stephen Haddrill’s rowing away into the sunset have any good effect at all.

Jim Peterson, a 19-year veteran of the in-house legal group of Arthur Andersen, writes about the profession on his blog, Re:Balance, and is the author of “Count Down: The Past, Present and Uncertain Future of the Big Four Accounting Firms.”

[Ed. note: This article was originally published on Re:Balance on Oct. 30. It has been re-published with permission.]

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