The FRC has blundered into Britain’s boardrooms

...and set out a series of potentially very difficult tests for the directors.

In the aftermath of the banking crisis it was inevitable, and appropriate, that part of the clean up would involve looking at the quality and effectiveness of the auditing and financial reporting of the banks and other associated financial institutions. The fall-out from this process is now starting to hit home with several major reports and consultations reaching a critical stage.

One of these is the investigation carried out by Lord Sharman into the concept of going concern. He was charged by the FRC to investigate whether, in the light of the financial crisis, it was time to reconsider the nature and use of going concern and liquidity risks and any lessons for company directors, investors and auditors and whether they were equally well served by current arrangements.

His inquiry reported back at the end of last year and was broadly welcomed as a sensible piece of work that asked important questions and raised interesting issues for debate. He suggested a number of subtle shifts in the use of going concern, pointing out a need for greater consideration to be given to solvency risk as well as liquidity risk, asking whether more information should be available on the way boards had reached a view on going concern (and especially any assumptions made in the process). But he was equally clear that there was no need to create a special regime for banks and other financial institutions.

In January the FRC revealed how it intended to implement Lord Sharman’s proposals when it released revised guidance on going concern for consultation. The reaction of almost everyone I have spoken to about that guidance has been one of alarm, apart from those who were either shocked or appalled at the prospect. The FRC appears to have adopted the sort of over-implementation more commonly seen when the UK government reacts to a European directive.

Considering the reasoning for his initial investigation, it is alarming to consider that while it’s unlikely much will change in the boardrooms of the UK’s largest financial institutions as a result of the new guidance, the boardrooms of almost every other business are in for something of a shock. Thanks to actions elsewhere in the regulatory universe, banks and financial institutions are already required to pay much closer attention to long-term solvency and liquidity risks and to look further ahead to try and spot and avoid potential future shocks. And for these financial few there is always the backstop of government or central bank support, with bailouts now apparently so normal a part of life that it’s OK for a bank requiring one to be considered a going concern.

Leaving aside the overly optimistic (some might say impetuous) timetable the FRC set for implementation of its guidance, under which the new system is effectively already in play (having kicked in for financial years starting last October, even if they aren’t due to actually report until later this year), there are also doubts being raised about the way the questions for consultation were framed. In January, Scottish Electoral Commissioner John McCormick forced the Scottish National Party to rephrase the wording of the question for the referendum on independence. Apparently voters felt that a question starting “Do you agree…” wasn’t neutral enough. A read of the FRC consultation shows that all but the last of 15 questions is potentially similarly positively loaded.

Doubtless with the best of intentions, the FRC has blundered into Britain’s boardrooms and set out a series of potentially very difficult tests for the directors. Whether directors should be asking themselves these tough questions is one thing, but whether they should be mandated to do so through the corporate governance code (even one built around a comply or explain model) is another. Likewise whether auditors should be thinking again about these issues in greater depth is up for debate, particularly given the wider questions on the future and value of audit. But again whether this is the right time, place or method to introduce such concepts is again questionable.

Above all, these proposals raise a question of who should pay the price for the failures to more accurately predict and deal with the financial crisis. The current FRC guidance seems to suggest that the most effective way to prevent a repeat is to place further complex burdens on those running small and medium-sized businesses and to make it harder than ever for them to access the vital funding and finance from investors. If there is one lesson from the financial crisis and the long, slow and fragile recovery from it is that we should be doing all we can to build confidence across all sectors of the UK economy. The greatest long-term risk to all investors and businesses is not their inherent liquidity or solvency but rather whether there will be a decent and growing market for their goods and services. These proposals will do little to assist that and potentially will be ultimately self-defeating as a result.

The only good news is that however loaded the consultation, the proposed guidance is still just a proposal. There is a public meeting at the FRC next Thursday morning to discuss the pros and cons of the proposals and consultation. Let’s hope that through the force of feedback and constructive discussion we might yet arrive at more sensible implementation of Lord Sharman’s suggestions.

Photograph: Getty Images

Richard Cree is the Editor of Economia.

Photo: National Theatre
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I hate musicals. Apart from Guys and Dolls, South Pacific, Follies – oh, wait

Every second is designed to be pleasing, so that by the end my face aches from all the smiling.

I always thought I hated musicals. Showy, flamboyant, and minutely choreographed, they seemed to be the antithesis of the minimalist indie scene I grew up in, where a ramshackle DIY ethos prevailed, where it wasn’t cool to be too professional, too slick, too stagey. My immersion in that world coincided with the heady days of Andrew Lloyd Webber’s triumphs in the West End – Evita in 1978, Cats in 1981 – neither of which I saw, being full of scorn for such shows.

From then on I convinced myself that musicals were not for me, conveniently forgetting my childhood love of West Side Story (for which I’d bought the piano music, bashing out “I Feel Pretty” over and over again in the privacy of the dining room, on the small upright that was wedged in behind the door).

I was also conveniently forgetting Meet Me In St Louis and A Star is Born, as well as An American in Paris, which I’d been to see with a boy I was actually in a band with – he somehow finding it possible to combine a love of The Clash with a love of Gene Kelly. And I was pretending that Saturday Night Fever wasn’t really a musical, and neither was Cabaret – because that would mean my two favourite films of all time were musicals, and I didn’t like musicals.

Maybe what I meant was stage musicals? Yes, that was probably it. They were awful. I mean, not Funny Girl obviously. When people ask “If you could go back in time, what gig would you most like to have attended?” two of my answers are: “Judy Garland at Carnegie Hall, and Barbra Streisand in the original 1964 Broadway production of Funny Girl.” I would, of course, also make an exception for Guys and Dolls, and South Pacific, and My Fair Lady, and… oh God, what was I talking about? I’d always loved musicals, I just stopped remembering.

Then one of our teens took me to see Les Misérables. She’d become obsessed with it, loving the show so much she then went and read the Victor Hugo book – and loving that so much, she then re-read it in the original French. I know! Never tell me today’s young people are lazy and lacking in commitment. So I went with her to see the long-running stage version with my sceptical face on, one eyebrow fully arched, and by the time of Éponine’s death and “A Little Fall of Rain” I had practically wept both raised eyebrows off my face. Call me converted. Call me reminded.

I was late to Sondheim because of those years of prejudice, and I’ve been trying to catch up ever since, keeping my eyes open for London productions. Assassins at the Menier Chocolate Factory was stunning, and Imelda Staunton in Gypsy (yes, I know he only wrote the lyrics) was a revelation. Here she is again tonight in Follies at the National Theatre, the show that is in part a homage to the era of the Ziegfeld Follies, that period between the wars that some think of as the Golden Age of Musicals.

Although, as Sondheim writes in his extraordinary book, Finishing The Hat, (which contains his lyrics plus his comments on them and on everything else): “There are others who think of the Golden Age of Musicals as the 1950s, but then every generation thinks the Golden Age was the previous one.” How I would have loved to have seen those shows in the 1970s, when they were new and startling.

They still are, of course, and this production of Follies is a delight from start to finish. A masterclass in lyrics – Sondheim’s skill in writing for older women is unmatched – it is also sumptuously beautiful, full of emotion and sardonic wit, switching between the two in the blink of an eye, in a way that appears effortless.

And I realise that what I love about musicals is their utter commitment to the audience’s pleasure. Every second is designed to be pleasing, so that by the end my face aches from all the smiling, and my mascara has somehow become smudged from having something in my eye, and I have already booked tickets to go again. So sue me.

Tracey Thorn is a musician and writer, best known as one half of Everything but the Girl. She writes the fortnightly “Off the Record” column for the New Statesman. Her latest book is Naked at the Albert Hall.

This article first appeared in the 21 September 2017 issue of the New Statesman, The revenge of the left