This instrument delegates current functions of the Secretary of State in relation to international accounting standards to a new UK accounting standards Endorsement Board, making the UKEB responsible for the adoption of international accounting standards for use within the UK.
We see the need to ensure that the international standards, which have now been put in place across the world, are properly placed in the UK context, particularly given the UK’s withdrawal from the EU. There is also a context in terms of being an independent body that can bring those standards forward and into the mainstream of UK accounting life in good order. With confidence behind it, the UK can be seen to be playing its part in international structures that are now the norm for those accounting standards.
While not looking to oppose the change, I have some questions for the Minister. The Explanatory Memorandum states:
“The Secretary of State sets the terms of reference for the UKEB.”
I have seen that the draft terms of reference for the board have been published, so when will the final terms of reference be published? The draft terms of reference say that the Secretary of State will appoint a chair. What advice did the Secretary of State get, and from whom, concerning the appointment of its inaugural chair, Pauline Wallace? The only activity of the UK Endorsement Board so far has been to bring itself into being, and that has been done via a rather curious route. First, the chair was appointed by the Secretary of State, and the chair then essentially constructed her
own board. That is not absolutely normal practice. The board normally elects the chair rather than the chair electing the board.
The noble Baroness, Lady Bowles, produced a lot of research about the members of the board. How can the board’s independence and accountability be guaranteed? Most members appointed to the board are accountants, so there is the potential danger for the board to reflect its own view of the profession on the profession itself. How will the Government ensure that this will not happen?
The Explanatory Memorandum states that
“the UKEB will be funded by increasing the FRC’s levy on preparers of accounts using IFRS.”
How much will the levy be increased by and how much will it be raised by annually? It has been reported that the FRC expects the overall cost for the financial year to increase by £6.1 million—not the £2 million that has been stated by the Minister—of which half will cover the cost of setting up the UK Endorsement Board. I wonder whether the Minister recognises this cost.
The Secondary Legislation Scrutiny Committee drew the SI to the attention of the House. It said that the UKEB
“will operate as an unincorporated association with support of the Financial Reporting Council … We note that these changes will mean additional responsibilities for the FRC at a time when the FRC itself will be undergoing transformation into the new Audit, Reporting and Governance Authority.”
Can the Minister explain what will happen when the new audit, reporting and governance authority is set up? Will it continue to fulfil the support functions?
The UKEB’s terms of reference will be set by the Secretary of State and will require the UKEB to report at least annually to the Secretary of State on its technical decision-making and to the FRC on adherence with its governance and due process. How regular does the Minister expect these reports to be? Would once a year be enough? I hope that the Minister will be able to provide some clarity to these questions.
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