Audit watchdog ‘in poor state’, says candidate for chair

The Government’s candidate to lead the Financial Reporting Council (FRC) has said that the situation at the top of the regulator is in “a pretty poor state”.

Businessman Sir Jan du Plessis said that he would address the governance of the auditing regulator if he was put in charge.

“I think perhaps for somebody in my position it is not wise to comment on what might have gone on before,” he told MPs on the Business, Energy and Industrial Strategy committee.

“But I have to say the governance situation at the FRC today is in a pretty poor state.

“They haven’t had a permanent chair for goodness knows how long, they’ve got three non-executive directors. It’s really, really not a way to run the regulator that should be setting the tone for the whole of British business.

“So I don’t know why it’s happened, I’m not sure what the background is, I’d prefer not to comment, but I think it’s really not good enough.

“And if I’m given the opportunity to take on the chair of the FRC I promise you that one of the first things I’ll do is to address the governance at the top of the organisation.”

If appointed, Sir Jan will come to the role after a series of scandals that have rocked the auditioning profession in recent years, leading to an admission from chief executive Sir Jon Thompson that the authority had been asleep at the wheel.

Several companies collapsed after auditing problems including Carillion in 2018 and Patisserie Valerie a year later.

Sir Jan said there had been “real progress in a number of critical areas” under Sir Jon, but that this had not necessarily filtered through to public perception.

Asked what he would bring to the job, the former BT and Rio Tinto chairman said that he could not promise to “bring magic”.

He added. “I want to start the job immediately, because it’s sad for me to see an organisation that is obviously needing a chair and needing other directors to take it forward.

“I think within two or three months we’ll have an organisation that is much better equipped to make decisions and to present itself to its external stakeholders as being in a good shape.”

He revealed that his approach would be not to create “avoidable costs” for businesses.

“I have no doubt that ultimately businesses create wealth and organisations like the FRC spend money,” he said.

“So we need to look after the wealth creators. And not just wealth creators, but the people who create jobs, employment and take society forward.

“So I think the last thing the FRC should be doing is to impose red tape costs and complications for organisations, in particular small organisations. No doubt about it.”

He added: “But if as a society we all agree that some of the high-profile scandals we’ve seen really cannot be repeated we’ve got to ask ourselves what’s the problem.

“And I think if we’re just going to accuse the bad guys in the auditing profession it’s not correct.

“Because much as we don’t like acknowledging that, when things go wrong in the first instance it is the board and management that were wrong or that had values or bad controls.

“Yes the auditors should have picked it up, but we can’t just look at the audit profession and expect them to provide the answers if we’re going to collectively try to avoid these scandals in future.”

Speaking about the Big Four auditing firms, Sir Jan said: “I hope they realise that unless they play their part in creating a different regime, the outcome could be much worse for them.”