AS THE next chairman of Britain’s accounting regulator, Sir Win Bischoff undoubtedly has the right financial and corporate experience to lead a body charged with promoting confidence in corporate reporting and governance.
Bischoff, the current chairman of Lloyd’s Banking Group and a former chief executive and chairman at Schroders and Citigroup, should bolster confidence in the FRC’s ability to tackle ongoing problems in bank reporting, auditing and governance.
A high profile appointment was to be expected. His predecessor, Baroness Hogg, had quite a resumé herself, as did her predecessor, Sir Christopher Hogg, and Sir Bryan Nicholson before him. Between them the past chairs at the FRC boast chairman and board roles at the likes of 3i Group, John Lewis, GlaxoSmithKline and the Post Office.
What makes Bischoff stand out is his banking background and views on accounting reform – given current flaws in bank reporting and concerns about the quality of auditing of banks.
Experts have pointed to inherent flaws in IFRS that allowed banks to pay out on unrealised profits by failing to make adequate provisions for loans that could go bad. This is an area in which Bischoff has previously had a lot to say.
In March last year, he called for a return to traditional accounting standards and suggested that mark-to-market accounting made it impossible for banks to make general provisions against future losses.
However, this is not an area where Bischoff has direct control. Any impact will rely on how he influences the IASB, the body responsible for setting international accounting standards.
Auditors have also come in for their share of flak for failing to spot banks’ bad practices, which contributed to the onset of the financial crisis. In December, the FRC announced a review into why improvements in the quality of bank audits have failed to materialise. Among other things, the FRC’s review will focus on the thorny issue of loan loss provisions.
Clearly, the problem with financial reporting and auditing within the UK’s banks played a part in the recruitment process. Also understood to have been interviewed for the role was Lord Green, former chairman and chief executive at HSBC.
But like most high-profile bankers Bischoff does not come baggage-free, having recently been drawn into the furore over Lloyds’ failed branch sale to the Co-op, the period of which is currently being investigated by the FRC. Lord Levene, the head of a rival bid that was rejected by Lloyds has suggested the bank was “swayed by political considerations”.
However, the FRC investigation is into the Co-op’s accounts and KPMG’s audit of the bank – not into Lloyds. It is therefore not expected that Bischoff’s role at Lloyds, which he leaves in March, will prove to be a conflict of interest when he takes up his new position.
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With the FRC’s implementation of Lord Sharman’s recommendations on going concern rumbling on in the background it is no surprise that banking veterans were among those being considered.
Set up in 2011 to look at audit and financial reporting shortcomings in the wake the financial crisis, particularly how banks’ disclosures were given a clean bill of health by auditors before subsequently needing to be bailed out by the state, delivering Lord Sharman’s recommendations is proving a difficult beast for the FRC to tackle. Having pacified the profession’s concerns about how going concern should be interpreted, a key member of the Sharman panel has warned that the FRC is in danger of departing from its original recommendation.
It is in these bank-related issues where Bischoff has the experience and knowledge. How the FRC tackles these over the next three years should be how his appointment should be judged.
Richard Crump is the deputy editor of Accountancy Age & Financial Director