Changes made to the regulation of banks and improved accounting and auditing systems mean the 2008 financial crisis should never be repeated, according to the Financial Reporting Council (FRC).
The combination of the improved accounting and auditing regime that is currently being implemented, alongside the improved regulation of banks, should ensure the safety of financial institutions in the future.
This report came yesterday afternoon in a statement from FRC chairman Sir Win Bischoff and chief executive Stephen Haddrill during the House of Lord’s economic affairs committee, where the FRC faced a ‘grilling’ over their proposals for going concern.
“I am confident we won’t see a repetition of the mistakes that were made [before].”
He highlighted the improved communication between auditors and regulators and the introduction of stress testing, capital requirements and enhanced risk management.
Haddrill welcomed the proposal by the Competition Commission that requires companies to publish results of any FRC inspected audit. This, he said, would generate pressure on the auditor to improve the standard of the report and create a higher level of accountability.
Under the proposals, auditors will be required to consider whether reporting is ‘fair, balanced and understandable’, and to consider and report if they are aware of any potential risks involved.
The new rules also require companies to state whether they believe they will be able to continue in operation and meet their liabilities, taking account of their current position and principal risks. This means that the period of assessment could be considerably longer than 12 month, the FRC have said.
The FRC going concern proposals have been met with controversy and are now out for consultation for the third time. However, both Bischoff and Haddrill defended the proposals, saying they believed they have now achieved a draft that captures at least two of the three main objectives of Lord Sharman’s concern report.
“We tried to come up with something which doesn’t necessarily please everyone but gives trustworthy information to shareholders which is important and part of our remit.”
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