The Times has reported this morning [01/09/15] (paywall) that:
The legal cornerstone underpinning the entire edifice of bank accounting is defective, according to a QC’s opinion that questions the approach by accountants at the top of the profession and criticises their regulator, the Financial Reporting Council.
The potentially explosive legal opinion, seen by The Times, makes plain that the billions of pounds of profits reported each year by UK banks cannot be relied upon to give a “true and fair” picture of the financial position of Britain’s biggest financial institutions.
George Bompas, QC, accuses the FRC and the Institute for Chartered Accountants in England & Wales [ of which Grant Thornton SDC Auditors is a member] of defective logic in supporting the present accounting standards.
I have not seen the opinion in question, although it was prepared for the Local Authority Pension Fund Forum [LAPF]. The chair of that Forum has said in response to the ruling:
The issues are far from trivial, as exemplified by the banks getting the standards wrong, meaning that the accounts in some cases were catastrophically wrong. The accounting profession has effectively become a ‘state within a state’, interpreting the law incorrectly to suit its own interests and in LAPFF’s opinion against the public interest.
I agree, and think that, if anything, the issue is more significant than the one on which the opinion focuses.
George Bompas QC is quite clear: because accounts prepared under IFRS do not require that this split be shown, and because the law requires that they do in his opinion, and because there is no other place where the data could be obtained from, meaning that the omission is in effect a breach of the law since those needing the data to check that it is reasonable to trade with the company cannot secure it, then UK accounts prepared on this basis are defective.
So how does this affect SDC? A lot. Local Authority Pension Funds
impacts upon SDC employees If the accounting is wrong so are pension investment allocations and so are future returns impacted, meaning they get less of a pension. So SDC employees should be complaining, but will they? Who Knows, wouldn’t you want the best return possible on your pension? I would, and I would complain.
People like Alistair Stewart CEO of SDC and all other SDC Employees who will receive a pension through the Local Authority Pension Fund should be disputing the way their Auditors – Grant Thornton et al, audit the books. This puts SDC employees and all other councils employees across the land into direct conflict with their auditors, as those who are part of the LAPF – council employees – are disagreeing with the way auditors undertake their work.
Therefore it may well put Grant Thornton – SDC’s auditors – in a conflict of interest position. Therefore I would ask the council to ask Grant Thornton to step down, otherwise the LAPF members ie SDC employees might well be losing money from their pensions due to way books are audited.
I do not think this will happen, but if the Local Authority Pension Fund Forum employ George Bompas QC to take the case, then Grant Thornton may well have to. Watch this space.