Standards & Guidance
Briefs .....
The UK's Financial
Reporting Council (FRC) is consulting on its
updated regulatory strategy and plan & budget for 2007/08. The strategic
framework outlines its activities and projects in its plan, which includes
monitoring UK corporate reporting and governance practices and participating in
the development of international standards and co-operating with international
regulatory organisations. The FRC's budget for its core operating costs in
relation to accounting, auditing and corporate governance is rising by 7% to
£10.9m compared with the previous year.
The Association of
British Insurers (ABI) has released a new version of its
remuneration guidelines,
with an increased focus on reviewing pension arrangements that may provide
executives with large payouts on severance. The guidelines also bring a new
focus to considering performance periods of longer than three years for
share-based incentive schemes, and have been extended to include option grants
in subsidiary companies. The ABI said the revisions were intended to provide
greater clarity while still containing the technical guidance experts require.
Peter Montagnon, ABI director of investment affairs, urged remuneration
committees to maintain a direct link between pay and performance. He added that
the ABI is particularly concerned about bonuses being increased to compensate
for share incentive schemes that fail to pay out.
There is a tendency among companies to make their
accounts unnecessarily long and complicated by inserting boilerplate
descriptions of accounting policies regardless of whether the matters described
directly apply to the company or not, according to the
Financial Reporting Review Panel (FRRP).
In the report on its
preliminary findings on international financial reporting standards (IFRS)
implementation in the UK, the FRRP said more focused and thoughtful treatment
would reduce accounts’ length and make the inevitable complexities attending
sophisticated commercial operations more understandable. However, FRRP chairman
Bill Knight said the first year of implementation had demonstrated a good level
of compliance, and as IFRS become more familiar it is likely further changes and
improvements will be carried out.
The council of the
Islamic Financial Services Board (IFSB) has adopted guiding principles
designed to promote sound corporate governance among firms providing Islamic
financial services (IIFS). As well as containing normal corporate governance
guidelines for banks, the guiding principles on corporate governance require
IIFS firms to have in place adequate infrastructure to protect the rights of
investment account holders and uphold Shari’ah governance – both unique features
of IIFS. The principles are based on existing international best practice
principles on corporate governance, which the IFSB said will allow them to be
adopted in concert with national codes. Professor Rifaat Ahmed Abdel Karim, IFSB
secretary-general, said the principles were expected to prompt further
improvements to the Islamic financial system.
The European Commission has decided that conditions
imposed on German energy group, E.ON, by Spain
in its bid
for Spanish counterpart,
Endesa, violate European Union law. The Commission required the Spanish
government to withdraw the conditions by 19 January.
The success of the EU's
shareholder rights directive should be judged on whether it increases voting
turnout at European general meetings and this could be jeopardised if the
investment chain can not be made to work effectively, according to the Association of
British Insurers (ABI). In its response to the UK's
Department of Trade & Industry
consultation on the
directive the ABI said its members are still finding that voting instructions
are not always acted on, especially when there is a complex chain of
international intermediaries. The directive is still being debated with the EU.
A recently
amendment from the European
parliament proposed that meeting notice periods could be set at 14 days
where electronic communications are provided by companies for investors.
The US Securities and
Exchange Commission has proposed amendments to its executive and director
compensation rule to be more consistent with the reporting of stock and option
awards to Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 123 Share Based Statement (FAS 123R). Christopher Cox, SEC
chairman, said the changes would made it easier for companies to prepare and for
investors to understand.
The voluntary corporate governance code developed by the
Private Sector Organisation of Jamaica
(PSOJ) took effect for listed companies in the country starting from
reporting years on or after 1 January. The code contains 16 principles of good
governance covering directors responsibilities, remuneration, relations with
shareholders and accountability and audit. The second part of the code explains
how the principles can be implemented. Jamaica's Financial Services
Commission has endorsed the code, while the Jamaica Stock Exchange was consulted
in its drafting.
Accountancy firm
PricewaterhouseCoopers (PwC) has been ordered to pay a total of £1.5m for
failing to properly carry out its responsibilities when auditing Transtec, the
collapsed motor parts manufacturer. Transtec went into receivership in 1998 when
it was discovered that the company had hidden a failed business deal with car
manufacturer Ford. The Accountants'
Joint Disciplinary Tribunal (JDT) fined PwC £500,000 and ordered the firm to
pay £1m in costs for its work on the 1997 and 1998 audits of Transtec, which the
firm first carried out as Coopers & Lybrand, and then after that firm’s merger
with Price Waterhouse, as PwC. The JDT found PwC had failed to carry out
adequate audit procedures and had relied too heavily on what it was told by
management. Jonathan Lander, lead partner on the TransTec account at the time,
was also fined £5,000.
A US federal
appeals court has ruled Wall Street banks will not have to face an enormous
consolidated class action lawsuit brought over charges of share price
manipulation. The ruling, passed on six “focus cases” out of 310 consolidated
lawsuits, found a judge had originally erred in granting class action status to
the suits, which have now been vacated and remanded for further proceedings. The
defendants – which included
Merrill Lynch,
Morgan Stanley and
Deutsche Bank – were accused of
manipulating initial public offerings during the late 1990s.
The inspections of audits carried out by
PricewaterhouseCoopers by the US Public
Company Accounting Oversight Board (PCAOB) during 2005 uncovered a number of
failures, according to the PCAOB's
report
published last month. Problems identified included failure to obtain
corroboration of explanations by management of a company of unexpected revenue
fluctuations the firm had identified and not testing, at another company, the
assumptions and underlying data management had used to calculate an impairment
charge. A recent
report
based on the 2005 inspections at rival big four accounting firm,
Deloitte, had also identified failings.
The
European
Commission is threatening to sue six EU countries for not implementing the
takeover bids directive. The Commission has contacted Belgium, Cyprus, Estonia,
Italy, the Slovak Republic and Spain, and said that if no satisfactory reply is
received within two months, the matter may be referred to the
European Court of Justice. The directive
requires a company gaining control of its target to buy out remaining
shareholders, and should have been implemented by 20 May 2006.
Both the leadership and staff of the UK's
Department of Trade and Industry (DTI) are
aware of a desire by some for its abolition, a
capability review of the government department has noted. The review also
remarked that the DTI needs to be more confident in its role and purpose, and do
more to participate in strategic discussions with other departments on the
government’s approach to business support.
Nominations for the investor relations best practice
awards, organised by the Investor Relations
Society, opened this week and will close on 26 January. Among the award
categories are best online annual report, best website and best annual report in
respect of corporate governance disclosure. To nominate companies, go to:
www.irbestpractice.org.
Big four accounting firm,
KPMG, has established an international standards group, based in London,
which will support its goal of achieving global consistency in the application
of international financial reporting standards (IFRS) and international
standards on auditing (ISAs). The group will be led by Rod Devlin, who sits on
the executive committee of KPMG’s French member firm. Mary Tokar, meanwhile, has
replaced Mark Vaessen as the head of the KPMG IFRS group. Sylvia Smith, who
heads the firm’s ISA group, will now operate out of London as part of the
overall international standards group.
The South African government has approved revisions to
its codes of good practice on black economic empowerment (BEE). The changes,
produced by the Department of Trade and
Industry (DTI) includes new provisions on black representation at
multinational companies operating in South Africa. However, while foreign
companies will not have to meet the usual requirement of having 25% of their
South African operations held by black business, they will have to make an
equivalent investment in local social programmes. The DTI has also taken steps
to make the BEE codes more comprehensible by simplifying their language and
providing an interpretive guide.
UK consultancy, Lane Clark &
Peacock, has launched a trustee governance consulting practice to help
pension trustees operate effectively and meet their scheme governance
obligations. LCP believes that it can help trustees manage and identify the
whole range of risks that might effect a pension scheme. January, 2007 |
