Financial regulation of public limited companies in the UK: A way forward post‐Enron
| Published date | 01 September 2002 |
| Date | 01 September 2002 |
| Pages | 254-265 |
| DOI | https://doi.org/10.1108/13581980210810247 |
| Author | SteIIa Fearnley,Richard Brandt,Vivien Beattie |
| Subject Matter | Accounting & finance |
Financial regulation of public limited
companies in the UK: A way forward
post-Enron
SteIIa FearnIey,* Richard Brandt and Vivien Beattie
Received: 10th May, 2002
*Department of Accountancy and Management Science, Portsmouth Business School,
University of Portsmouth, Locksway Road, Milton, Southsea, Hants PO4 8JF, UK;
tel: +44 (0)23 9284 8484; fax: +44 (0)23 9284 4037; e-mail: stella.fearnley@port.ac.uk
SteIIa Fearnley BA FCA is a Reader in
Accounting at Portsmouth Business
School. She is an elected member of the
Council of The Institute of Chartered
Accountants in England and Wales. Her
main research interests are audit and the
regulation of financial reporting.
Richard Brandt MA FCA is a Senior
Research Fellow at the University of Ports-
mouth. He was UK Head of Audit at Grant
Thornton for nine years where he took
responsibility for the development of the
Grant Thornton Audit Manual. He is a
former member of the Urgent Issues Task
Force. His main research interests are
audit and the regulation of financial report-
ing.
Vivien Beattie MA CA PhD is a Professor
of Accounting at the University of Stirling,
Scotland. She has been the part-time
Director of Research at The Institute of
Chartered Accountants of Scotland since
1998. Her main research interests are
business reporting and the external audit
market.
ABSTRACT
On 16th April, 2002, the authors gave oral
evidence to the House of Commons Treasury
Committee Inquiry into Financial Regulation
of Public Limited Companies which was set up
following the collapse of Enron. This paper is
adapted from the written submission to the
Committee on which their oral evidence was
based.
The authors argue that the Enron collapse
provides an opportunity for regulators to stand
back and consider fundamental issues associated
with the regulatory framework for financial
reporting, auditing and corporate governance in
the UK.
They challenge the financial reporting frame-
work as being muddled between the concepts of
stewardship and decision usefulness. Company
balance sheets are an amalgam of figures based
on historical cost and accounting estimates. The
increasing use of financial instruments and the
inclusion of intangibles makes valuations com-
plex and judgmental and therefore much more
dfficult to audit.
Incentives in the capital markets which drive
the behaviour of all participants should be con-
sidered to ensure that the current system does
not encourage dysfunctional outcomes and exces-
sive rewards. The personal incentives for part-
ners in audit firms are of particular interest as a
potential key influence on auditor independence.
It is suggested that non-executive directors
should be mandated to protect the interests of
investors.
Journal of Financial Regulation
and Compliance, Vol. 10, No. 3,
2002, pp. 254–265
#Henry Stewart Publications,
1358–1988
Journal of Financial Regulation and Compliance Volume 10 Number 3
Page 254
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