Britain Tightens Accounting Rules
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LONDON (AP) _ Seeking to shore up investor confidence, the government on Wednesday announced plans for stricter rules for the accountants and auditors who inspect the financial records of British companies.
Trade and Industry Secretary Patricia Hewitt said the tougher rules would be aimed at ensuring timely, true and fair financial reporting, in the hope of averting U.S.-style corporate debacles such as the collapse of Enron Corp.
Hewitt outlined her plans while commenting on an interim report prepared by her department and the Treasury that examined the implications that accountancy irregularities in the United States might have for British businesses. The government is to decide on specific new rules after the final version of the report is released by year’s end.
Tougher mechanisms to reinforce auditor independence were among the new measures Hewitt called for. Speaking in Parliament, she said corporate audit committees should be made up entirely of independent non-executive directors from outside the company to ensure they act more clearly on behalf of shareholders and not management.
Senior members of financial audit teams should be rotated to other assignments every five years instead of seven, as is the practice currently. Accounting standards also should be enforced more effectively and proactively, Hewett said.
``This is not about piling unnecessary regulation upon the vast majority of companies that are honestly and properly run. But the actions of a few are damaging the reputation of all,″ Hewitt said.
``And by taking sensible steps to strengthen corporate governance and financial reporting, and thus to restore investor confidence, we will benefit business and our economy as a whole.″
Hewitt called for a review of the way the accountancy industry is regulated. Regulatory arrangements by the recently established Accountancy Foundation had ``not progressed as rapidly as we hoped,″ she said.
The Confederation of British Industry welcomed the recommendations and expressed satisfaction that the interim report had not overreacted to the Enron and WorldCom scandals, which it said were essentially an American problem.