The Panel reviews accounts for compliance with the law and accounting standards. The Panel reviews the annual accounts of public and large private companies and keeps under review interim and final reports of certain other listed issuers. Since April 2006 the Panel also reviews directors’ reports.
Directors prepare accounts and auditors audit and report on them. The Panel does not duplicate what they do. Directors are responsible for the accuracy of the accounts and for their judgements. It is the role of the Panel to enquire into cases where it appears that the rules have not been followed - in the words of the Companies Act ‘where it appears to the Panel that there is, or may be, a question whether accounts comply with the requirements of this Act’.
Where there may be a case to answer the Chairman appoints a group to conduct the enquiry, normally made up of five members including himself and the Deputy Chairman. Other members are chosen from the Panel to provide a balance of experience relevant to the enquiry, excluding any potential conflicts of interest. Members of the Panel outside the group are not normally involved and the group’s exchanges with the company are confidential.
The group puts its concerns to the directors in correspondence and at meetings. The Panel encourages directors to consult their auditors, to involve their audit committee and to take any other advice they feel they need. The process is informal but is intended to combine efficiency with fairness. As defective accounts could mislead the public, the procedures need to allow for speedy rectification. The group aims to reach agreement with the directors of the company by persuasion. If the group is satisfied by the company’s explanations, the case is closed and the fact that an enquiry was made remains confidential. Where the directors agree to take remedial action the Panel issues a press notice. The Panel does not comment on or discuss its conclusions further.
The Panel selects accounts for review in a number of ways. First, the Panel discusses with the Financial Services Authority and the Panel’s Standing Advisory Group which sectors of the economy are under strain or likely to give rise to difficult accounting issues. Then the Panel chooses a number of sectors and reviews a selection of accounts in each. Next, the Panel is developing its own risk model to identify cases where accounting problems are more likely – cases of poor corporate governance for example. Then the Panel looks at specific topical accounting issues and last but not least responds to complaints from the public, the press and the City. In all cases the selection is based on the Panel’s assessment of the risk of non-compliance and the risk of significant consequences if there is non-compliance.
The Panel will not normally open an enquiry into the accounts of a company in administration or liquidation, as the cost to the company, which is borne by shareholders and creditors, is unlikely to be matched by any benefits which might be available from the revision of accounts. In such cases, the administrators or liquidators are charged with identifying and realising the company’s assets and settling liabilities in accordance with the company’s obligations and that task is best left to them.
Section 461 of the Companies Act 2006 lists a number of persons with whom the Panel is entitled to share information which would otherwise be confidential under the Act. These persons include the Secretary of State for Business, Enterprise and Regulatory Reform, the Treasury, the Bank of England, FSA, and HMRC. If requested by one of these authorities the Panel will normally be prepared to review a set of accounts and report its findings to the authority concerned. The Panel will draw to the attention of that authority any matters apparent from its review which the Panel believes to be relevant to that authority’s regulatory function. Whether the Panel will go on to open a full enquiry itself will be a matter to be decided by the Panel in each case.
The Panel’s formal procedures were reviewed by the then Secretary of State before she decided to appoint the Panel to carry out its duties.
