Pension funds say accounting watchdog is ‘compromised’

They accuse the Financial Reporting Council of supporting accounting rules it believes are not sufficiently robust

Pension funds worth £300bn have branded the accounting watchdog “a creature of regulatory capture” and claimed it is compromised by its links to the Big Four audit firms.

The Local Authority Pension Fund Forum (LAPFF), an association of 87 local authority pension funds, accused the Financial Reporting Council (FRC) of supporting revised international accounting standards it claims are less robust than those required by UK law.

The LAPFF’s long-held view is that the international rules make it easier for struggling companies to pay out dividends that eat into their capital.

After the Brexit transition ends in December, the UK will need to decide whether to adopt any future changes to the international accounting standards.

In a letter to the FRC last month, Doug McMurdo, chairman of the LAPFF, accused the watchdog of being “a creature of regulatory capture and compromised with the Big Four accounting firms”.

The Big Four auditors - KPMG, PwC, EY and Deloitte - dominate the world of professional services, prompting scrutiny and some changes to how they do business.

“It is not acceptable to have the law requiring one thing and the FRC knowingly agreeing to something that is so obviously different,” he said.

The FRC declined to comment. The watchdog is being overhauled after auditors overseen by the regulator failed to raise red flags before high profile corporate collapses at the likes of Patisserie Valerie and Thomas Cook.

In a separate letter to the business select committee, Mr McMurdo claimed that investor groups which support the international accounting standards “tend to be a less than qualified group ... and don’t actually represent investors”.

“In large part these purported investors have been corralled by PwC,” he said, referring to the Corporate Reporting Users’ Forum (CRUF) to which PwC provides administrative support and technical expertise.

A PwC spokesman said: “We don’t recognise this assertion.” The firm is not a member of the CRUF, whose website states that PwC does not influence the group’s discussions or responses on any given topic.