* FRC echoes BoE call to consider bespoke rules for banks
* FRC to study impact of retendering on audit quality
* Ernst & Young warns of price war hitting quality
By Huw Jones
LONDON, Nov 5 Banks may need their own
accounting rules and governance codes to restore investor trust
in the sector, Britain's audit policeman said on Monday.
Accounting firms are on the back foot after they gave banks
a clean bill of health just weeks before many had to be rescued
by taxpayers in the 2007-09 financial crisis.
Banks were audited using rules applied to all sectors and
Financial Reporting Council (FRC) chief executive Stephen
Haddrill said this may have to change given what happened.
"To what extent, for the purposes of our work, should banks
be regarded differently?" Haddrill told a conference organised
by accounting firm Ernst & Young (E&Y).
"Should they have a separate code and their own accounting
standards?" Haddrill said, adding the need was not "evident" for
now but the FRC has set up a working group to study this.
There was a "real challenge to investibility" in banks and
lenders should make greater use of disclosures in financial
reports to win back market trust, Haddrill said.
In June Andrew Haldane, director of financial stability at
the Bank of England, which will regulate lenders from next
April, said the UK needs separate accounting rules for banks for
investors to properly evaluate risks.
Haddrill said he was nervous about introducing more rules
which could be manipulated or foster the herd mentality seen in
the run up to the crisis.
For now the FRC will put more pressure on boards to ensure
reports are fair, balanced and understandable.
"We want to bring an end to any part of the report being
used to puff up the company without due regard to the quality of
information," Haddrill said.
The FRC won't "spoon feed" companies with detailed guidance
on what is fair, balanced and understandable. "The more guidance
we provide, the more we emasculate banks and others involved in
governance," Haddrill said.
Hywel Ball, a partner at E&Y, said the audit sector,
dominated by the "Big Four" - E&Y, KPMG, PwC and Deloitte -
faces several regulatory powder kegs set to blow the sector
The FRC has just introduced a rule requiring UK companies to
consider retendering their book-checking work at least every 10
years to end what critics say are cosy relationships between
auditors and their customers spanning decades.
The European Union is approving a law forcing companies to
switch accountant every six years, with the FRC's U.S.
counterpart, the PCAOB, looking at similar moves.
Britain's Competition Commission will also say in early 2013
whether the audit sector needs "remedies" to boost competition.
Ball said these changes could spark a price war to win
business with audit quality suffering, but Haddrill said the FRC
would monitor the impact of retendering on quality.
The "shareholder spring" of the past year, when investors at
banks and other firms publicly challenged generous pay packets
of top officials, should move on to behind-the-scenes lobbying
by investors rather than rows in public, Haddrill said.
"We are not going to get involved in setting people's pay,"