Lords to debate audit reform

For those wondering what’s happening to UK audit reform, there may be news coming in the not so distant future. In fact, the House of Lords will consider a request from government ministers for details on what they plan to do next month.

The short debate, on 14 October, is prompted by a written question from former accounting academic and terrier-like campaigner Lord Prem Sikka. He asked what plans the government has to “address any external auditing deficiencies highlighted by the collapse of BHS, Carillion, Patisserie Valerie and London Capital and Finance.”

A flame was lit under audit reform by the collapse of Carillion back in 2018. Three government reviews later and, after endless debate, only a fraction of published recommendations have been seen through.

The major reforms—a brand new regulator, with boosted powers, and the introduction of managed shared audit—were overlooked by the previous government despite repeated declarations of intent.

Shortly after the election in July, the King’s Speech revealed Labour would return to the reforms but a bill has yet to appear.

A report for the Lords says the new government would “replace the FRC (Financial Reporting Council) with ARGA (the Audit, Reporting and Governance Authority), which would have enhanced enforcement powers to investigate and sanction company directors ‘serious failures’ in relation to their financial reporting and audit responsibilities.”

The scene is set for October. Another audit spectacle.

Nice try, Trian

Close observers of governance matters would have been spellbound (almost literally) by the standoff between the board of Disney and activist investors Trian.

Trian wanted board seats; the Disney board wasn’t giving in. The entertainment industry giants won in the end, but the affair has become a case study with lawyers, and company secretaries poring over the detail of how boards can counter the demands of activist investors .

This week, US academics conclude the “proxy showcase” was a “masterclass in creative media use and shareholder engagements, on both sides of the fight, setting a precedent for what contested situations could look like in years to come.”

And while Disney is widely considered the victor in the clash, the case study’s authors Patrick J McHugh and Bruce Goldfarb point out that Trian came out of the whole affair quite well. “While the media and many advisors like to talk about wins and losses, hedge funds measure their success by returns, and it was reported that Trian made substantial profit on their position.”

Every cloud and all that.

Fifty shades of green

Governance can win you accolades. This week, it was announced that London Business School boffins Alex Edmans and Tom Gosling, along with the London School of Economics’ Dirk Jenter, have bagged the PRI Outstanding Research Award for best paper.

The winning paper, Sustainable Investing: Evidence from the Field, involved a survey of more than 500 fund managers to examine the extent to which they use ESG factors in their investment decisions.

Turns out traditional and sustainable investors invest more similarly than originally thought.

Prof Edmans says: “Views on sustainable investing have become rather binary.

“Advocates claim that it always outperforms; some skeptics wish to ban the use of environmental and social factors in investment decisions.

“We hope that our research helps uncover the complex shades of grey in issues often seen as black and white.”

Cue champagne corks, streamers and fingers crossed that companies are still trying to save the planet.