FRC Head Says More Information Should Be Given to Investors

Jack Humphrey, Regulatory journalist
February 11, 2011 /

Speaking before the European Commission conference on February 10, Financial Reporting Council (FRC) chief executive Stephen Haddrill said the gap between audit performance and investors’ expectations from financial statements should be addressed.

“We want investors to learn about the business and its future from the directors; we want the directors to say more about the things that really keep them awake at night; and we want to empower auditors to challenge management by requiring them to say whether the Board have really given a balanced and fair view on these matters as well as on the accounts”, he said.

Late in January, the Securities and Exchange Commission has proposed recommendations to widen investors’ access to publicly available disclosure statements of broker-dealers and investment advisers.

The recommendations include two separate databases for investors to gain access to information about the activities of broker-dealers and investment advisers.

BrokerCheck, which is run by the Financial Industry Regulatory Authority, stores data about broker-dealers and individual brokers. The Investment Adviser Public Disclosure, or IAPD, contains annual disclosure statements filed by investment advisers with the SEC, including details of their businesses and possible conflict of interest.

Earlier than that, PricewaterhouseCoopers said it would support the areas in European Commission’s Green Paper that requires more transparency and accessibility of audit reports to all stakeholders.

Meanwhile, Haddrill added that investors should also be given a better view into the future of the company they are putting their money in and insights into the process of preparing a financial statement.

He told the European Commission to “forge a better balanced triangle between companies, auditors and investors” to “create a partnership in which each plays their full role.”

Commenting on the proposal of the European Commission to increase the competition between auditors, Haddrill said “we must not do anything in the name of competition that puts quality at risk.”

Haddrill recommended that financial institutions use non-Big Four firms as a source of advice to their risk committees, thus putting away the use of “Big Four only” clauses in banking and loan covenants.

He also proposed before the European Commission that a more serious consideration in amending the current rules on audit firm ownership should be given attention to allow them to access external capital to fund expansion.

 

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