Accounting Standards (Hansard, 4 July 2002)

§ Lord Boardman
asked Her Majesty's Government:
What are their proposals for ensuring that there is transparency in United Kingdom company accounts.

§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)
My Lords, the Government believe that the UK's accounting standards already provide for a high degree of transparency in company accounts, although in a world of increasingly complex transactions we must not be complacent.
A number of measures are in hand to build on the existing position. These include the recommendations of the company law review, the move to international accounting standards and the group chaired by DTI and Treasury Ministers which was formed in February to co-ordinate the response of key regulators to issues of accounting, auditing and aspects of corporate governance raised in the aftermath of Enron. This group will produce an interim report by the end of July.

§ Lord Boardman
My Lords, I thank the Minister for that Answer. Does he not regret that the Government set a bad example by keeping billions of pounds of borrowing off their balance sheet? As to company law, the subject of my Question, does he consider that 348 chairmen of companies should be required to take a greater responsibility—and perhaps a personal responsibility—for the fairness of the accounts. After all, chairmen recommend to shareholders the accountants they wish to appoint. They also appoint senior executives, some of whom, no doubt, will be aware of any imperfections in the accounts. These matters require considerable consideration.

§ Lord Sainsbury of Turville
My Lords, these are exactly the kind of complicated questions the group is looking at and on which it is co-ordinating various expert views.

Lord Bruce of Donington
My Lords, will the Minister give the House an assurance that those firms which may be involved in the inquiries he envisages do not themselves suffer from the very defects about which he is complaining?

§ Lord Sainsbury of Turville
My Lords, the work we are doing at the moment involves co-ordinating the expert advice of various bodies. I do not think the particular issues we are talking about in terms of accounting standards apply to those bodies, which are, by and large, statutory bodies involved in controlling and regulating the profession.

§ Lord Oakeshott of Seagrove Bay
My Lords, does the Minister accept that company accounts in this country generally present a truer and fairer view than those in the United States—not because British businessmen and accountants are straighter than their American counterparts but because we learnt the lessons of our own Enrons and WorldComs five or 10 years ago? They were called Barings, BCCI and, above all, Maxwell.

§ Lord Sainsbury of Turville
My Lords, that is probably a fair judgment. I do not believe t hat you can make a comparison. In this instance, we had both problems and solutions, in some cases, earlier on. Of course, as has been pointed out, the basis of accounting is in some critical ways different. The American system has some very specific rules whereas the British system is principle-based and auditors have to give a view as to whether there is a true and fair account of the economic situation.

§ Lord Barnett
My Lords, does my noble friend accept that what has happened with accounting practices, in America and elsewhere, is too serious for party political exchanges? It could happen here. I am glad that my noble friend is not complacent, but does he accept that it is less a matter for government intervention than for intervention by the major financial institutions, which select the non-executive directors who sit on the audit committees of major companies in the UK? If he is going to do anything at all, will my noble friend intervene by telling these major financial institutions—which may in practice 349 control most of the FTSE 100 companies—that they should intervene more frequently to ensure that the non-executive directors are doing the right job?

§ Lord Sainsbury of Turville
My Lords, I have a good deal of sympathy for that view. However good the rules, unless there are people in the company who independently will enforce those rules and insist that the right things are done, many of the rules will be a complete waste of time. My noble friend is right to point out that the financial institutions which control many of the shares are undoubtedly in the best position to ensure that the non-executives fulfil their responsibilities properly.

§ Lord Saatchi
My Lords, the noble Lord, Lord Barnett, is right when he says that public accounts are too important to be dealt with in a party political way. Is it not true that the Government do exactly that? This Government call spending "investment"; call benefits "credits"; and call tax "insurance". By using those accounting practices, the Government massaged down the politically sensitive figure for the UK tax burden—and would still be doing that today if they had not been stopped by the Office for National Statistics. Is that not the reason for the Chief Adviser to the Treasury—the Government's own adviser—writing this comment? I quote: Reader understanding of financial reports in the public sector is sometimes felt by those who compile them to be a disadvantage".

§ Lord Sainsbury of Turville
My Lords, the question put by the noble Lord, Lord Boardman, was specifically about UK company accounts. I appreciate that the noble Lord, Lord Saatchi, always wants to make his little speech about deficiencies that he sees in the public accounts but the original Question was about company accounts.