Audit and Accounting (IFRS) LAPFF 2013:

This presentation was one of the most important and the first of a few LAPFF reports on how those who are suppose to be protecting us in financial services are letting us badly down (or even much, much worse)

Tim Bush from PIRC spoke first on "Getting the numbers right - a progress report".  This is an update on this LAPFF report
"UK and Irish Bank Capital Losses - Post Mortem"

Tim described how his fellow speaker, Iain Richards (bottom left) had originally wrote a paper "Bringing Audit Back from the Brink" in 2004 and how he was attacked and smeared by the Audit "profession" over it.

It is now pretty clear that the Banking Crisis was caused at least in part to the failure of the standard setters in the accounting profession. These standard setters "lost the plot" and the Financial Standards Agency (FSA) went along with it. There was since a "cover up". Rather than admit that the numbers were wrong they choose to "complicate, distract and confuse".

Banking losses are even now not fully disclosed. The Bank of England agreed (Nov 2012) that the undeclared losses in UK Banks are nearer to the £50 billion that PIRC originally estimated. Our investor coalition went to QC George Bompass for legal advice. He said that UK Company Law prevails over accounting profession standards.

This is vitally important since the audit profession makes the crazy, ludicrous claim that the accounts they "passed" of Banks that were now clearly insolvent, conformed to their standards at the time (if not the law). - so that is alright then?

What this investor coalition want is audit standards that are "true and fair value", prudent and maintain capital.

Iain spoke about how the European Union seem likely to insist on the retendering of company auditors after 10 years and the mandatory rotation after 20 years. This is not ideal but it at least establishes some important principles and is a tangible change at last.

But the real issue is the "diabolical audits". The banking collapse was entirely predictable. Auditors acted within flawed industry standards and not the statutory law. "All that matters is we comply with standards".  This is a great game of musical chairs and word play. We must get auditors to adhere to the legal framework.

My question to the panel is that without being too conspiratorial how much are such "conflicts" in company audits driven by the cross selling of services by audit partners e.g, investment advice.

The EU had suggested originally that firms should be only auditors but due to to massive opposition and lobbying this was dropped. In Germany this happens and the auditors are genuinely respected, do a good job and also make money.

A very interesting comment by David Pitt-Watson that he use to work for a large accounting firm and that there are still good, honest people in these firms who want to do the right thing. 

It was suggested that this is very true and that Tim and Iain get a lot of secret help and support from individuals in these firms however the governance of these firms over international standards is at least as bad as the discredited football regulator FIFA. If not worse.

I personally don't follow or to be honest, give a toss about football, but I do care about my pension scheme members, who trusted and paid large amounts of money to those so called "professionals" to audit the accounts of the companies their funds were investing into - it is now clear that we were all just being scammed and ripped off.

Unbelievably they want nothing really to change and still want to rip off pensioners, orphans and widows in the future.

Executive Remuneration – free seminar for pension fund trustees

Executive Remuneration – free seminar for pension fund trustees

Co-hosted by the TUC and Fair Pensions 2.00 – 3.30pm, Monday 21 May, Congress House with speakers:

Frances O’Grady, TUC Deputy General Secretary

Iain Richards, Head of Governance and Responsible Investment, Threadneedle Investments

Catherine Howarth, Chief Executive, Fair Pensions

Are current levels and rates of increase of executive remuneration fair and transparent? Are fund managers reflecting the views of beneficiaries in their engagement with companies on executive pay? What can pension fund trustees do to bring about improved practice in the area of executive remuneration?

You are invited to discuss these and other questions at a free seminar for pension fund trustees hosted by the TUC and Fair Pensions taking place from 2pm – 3.30pm on Monday 21st May, in Congress House, Great Russell Street, London WC1B 3LS.

 

Fair Pensions has produced a briefing for trustees on executive remuneration, which can be found at http://www.fairpensions.org.uk/sites/default/files/uploaded_files/investorresources/ExecutivePay2012.pdf

To register for the seminar, please e-mail trusteenetwork@tuc.org.uk

LAPFF Conference 2010: Stewardship Code: Putting it into practice

Tom Powdrill (PIRC) led a panel discussion about putting the Code into practice. David Murphy (NILGOSC), Tony Little (Gartmore) and Iain Richards (AVIVA). The Code came out of the Walker Report and is a response to the financial crisis. Not a fluffy “feel good” report but an attempt to try and prevent a future financial crisis. Can shareholders control companies? If shareholders cannot then look at Ireland were due to voluntary failure there is now a regulatory approach to governance.

David spoke first about his scheme. There are 204 employers, over 80,000 members and £3.6 billion assets. They support the idea that they are asset owners; they are the ultimate owners and should take responsibility for what has gone on in the past. They believe in co-operation and the importance of disclosure. They vote in all markets and report back on investment policy. Be open and transparent.

Tony explained that Gartmore are mainstream investors in 2,500 equities around the world. He was struck by the difference between this report and the UK governance report Cadbury which said this is what good practice looks like and others should aspire to it. The Stewardship Code “horse trades”. This is what you should be doing. Will see what good practice eventually looks like. The EU intervention has been negative rather than positive. They have forced the pace. They want to regulate. His role often is to be candid friend.

Ian said there may be over blown expectations of the Code. It was to resolve the “absentee landlord” problem in the run up to crisis. But there is an issue of resources. They have 7 in his team but this is still limited. Conflicts still exist; there are still misaligned incentives, short term structural problems. There are differences of objectives in engagement. In the UK 13% of shares are owned by pension funds and 13% by insurance funds. But it is only 26% of market. 40% of UK now owned by overseas investors. Concern around the role of the ISS.  An unaccountable organisation who admits looking after its primary audience - US investors. An awkward question is what do fund managers do? They have already signed up to the Stewardship principles. Is it transparent to have such long policy statements? Principle 7 (reporting on what they do) is the most important. There is a poisonous view that all you have to do is delegate everything to fund managers – and job done. This leads to apathy.

Next Q&A. I asked a question about how the new Code will not last be last word on governance and will evolve and change. Panel members have hinted at things that could be done better. What one significant improvement would each of the panel members want to see in any future review?

Tony: it needs to be redrafted and made clearer. The FRC next time should engage more about what is good practice. Iain: that it should be extended across to Europe. Especially with Funds tied to banks. David: he is against further regulation. He is happy with “comply or explain” approach. But it does need to be fleshed out. It’s a bit vague. Not only would he like it extended to Europe but wouldn’t it be nice to have in the US although that is “pie in sky”.

Tom asked does the Code make a RBS (Royal Bank of Scotland) less likely. Tony: No but... Ian – more cynical. Nothing much changed. No evidence that in 5 years time the world will have changed. David: We don’t know what will happen next.

The largely negative response to this question supports my own view that the Code (although an welcome improvement) is just sticking plaster and not the root and branch reform that is needed to stop another Fred the Shred.