Giving evidence to the Business, Energy and Industrial Strategy (BEIS) Committee this morning as part of its inquiry into the future of audit, he said that, while it was his “very clear ambition” to upgrade the standards and boost public confidence in audits, it was also important to recognise that “audit and other professional services in this country are widely admired around the world”.
“The reason we are taking these steps is that that should continue to be the case… I don’t want anything to be thought to imply that the quality of our profession here is anything less that world leading,” said Clark.
He also paid tribute to audit firms for providing such a good business training to the many people who work in audit and professional services.
Clark was responding to questioning from committee member Peter Kyle about how far he was prepared to go in implementing reform if it was to the detriment of the Big Four’s profitability.
Alex Chisholm, the BEIS Department’s permanent secretary, also told the committee that there was a balance to be drawn. “The approach we take is that we recognise that audit and the accountancy profession make a very important contribution to the economic life as a whole in the UK as a huge source of gross value added. [It] employs hundreds of thousands of people and is actually admired the world over.
“So it’s not a disaster area at all,” he added. “But we do think that there can be improvements in the quality of audit, choice and resilience, and, importantly, in public trust.”
Clark told the committee that he was keen to press ahead with legislation implementing the changes proposed in the Kingman and the Competition and Markets Authority (CMA) reviews. He does not intend to wait until the end of the year when Sir Donald Brydon is due to come out with his report on the future of audit; nevertheless, he said, he wanted to accomplish it in an orderly manner and was not prepared to be pushed into jumping the gun.
He pointed out that the consultation on the Kingman recommendations did not finish until June so the legislation would not be ready until after then. And once it was ready, they would still have to wait for a legislative slot in the Brexit-busy schedule.
Similarly, he resisted attempts by the committee to push him into replacing Financial Reporting Council chairman, Sir Win Bischoff, and chief executive Stephen Haddrill immediately.
BEIS committee chair Rachel Reeves tried to persuade him to put his “cards on the table” and admit that, like her, he did not have confidence in the FRC leadership team but he was not to be drawn. “Sir John [Kingman] and his colleagues do record some strength in the organisation,” he said. “They didn’t recommend an immediate dissolution or replacement of the current leadership team.”
He pointed out that Haddrill had already announced his resignation last October while Sir Win had announced this week that he was coming to the end of his tenure. “I think there was a recognition that it is time to make a change but we can’t have a gap here. There needs to be good order. This continues to be a very important, in fact an increasingly important, organisation,” he said.
“Our response, in the document published on Monday, is to get the FRC to take on, in advance of the legislation, some of its new remit and to do that, you need to have people in position.”
He rejected the implication that his department had been slow on the uptake given the passage of time since the collapse of Carillion. “I think anyone who has seen the changes I’ve made, the appointments that I’ve made and our responses to them, is under no illusion, whether from the energy companies to the audit industry, that I believe we need to upgrade our standards and be a beacon of excellence around the world in the years to come.”