The dog days of summer

This week saw the UK governance watchdog, the Financial Reporting Council, give itself a pat on the back in its annual report and accounts.

Highlights include improving audit quality, publishing a new stewardship code and amending the ways in which problem issues can be resolved with audit firms that are in the doghouse.

Only two mentions, though, for the audit and governance reforms cast aside by the government earlier this year.

Outgoing chair Sir Jan du Plessis writes: “We were disappointed that government was unable to take forward the audit and corporate governance reform bill, however, we welcome the commitment to put the FRC on a statutory footing when parliamentary time allows.”

The FRC were not the only ones. Du Plessis’s replacement, Jayne-Anne Gadhia, was grilled by MPs in the House of Commons over how she would persuade the government to push on and get the statutory footing sorted. She said she believed the government understood how important it was. Let’s hope so.

Grants of all stripes

Over in the US, courts have blocked efforts among federal agencies to offer grants on the basis that they involve no DEI projects. A federal judge has blocked the no-DEI elements to grants offered to California and Oregon.

Investor advisers Minerva write: “The ruling reflects a widening split between federal policy direction and judicial interpretation.” And adds: “This divergence is becoming a defining feature of the current US governance landscape, particularly in areas where executive action is being used to drive policy change.” DEI lives on!

Fair and away

UK directors should be concerned about another issue—the implications of long-term leave. The Chartered Governance Institute UK & Ireland (CGIUKI) has conducted research looking at what happens when directors take long-term leave for maternity or illness.

It found that, in “many cases”, individual directors remained liable for decisions taken while they were off work. CGIUKI Chief executive Linda Ford called for legal and regulatory “clarity”.

“People who take maternity leave, long-term sick leave or time away to care for loved ones should not find themselves navigating legal uncertainty at the same time.”

Sceptics welcome

Works on audits in 2019 and 2020 for Babcock International Group earned PwC and one of its partners financial penalties of almost £3.3m. The Financial Reporting Council announced the firm is fined £3.2m (reduced from £5.5m for cooperation) and given a severe reprimand.

John Waters, the engagement partner, faces a penalty of £59,000, discounted from £100,000, and also a severe reprimand. Babcock, a defence company, restated accounts in 2021.

An FRC statement says the penalties were imposed because of “significant contraventions of the fundamental requirements to perform an audit with adequate professional scepticism and to evaluate effectively whether the financial statement complied with accounting standards and achieved fair presentation of the underlying transaction.”