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Ms Hewitt: I am grateful to my hon. Friend for those comments. We shall closely consider the Select Committee's proposal. I shall certainly not make a snap judgment on it, any more than I would on its other proposals. The Select Committee drew an analogy with

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the FSA. As I said, we will consider the funding arrangements for the Accountancy Foundation as part of the review of the regulatory structure.

Mr. William Cash (Stone): Does the Secretary of State accept that her proposals are greatly welcomed in the round by Conservative Members, but company law reform is a matter of enormous importance for capital markets and for the true value that can be placed by shareholders and others on the public interest. Does she agree that, in reviewing the duties of directors, auditors and others, it is imperative that an arrangement is made in company law to protect those people? They know what is going on inside a company at a given time, and they know in good time what is going wrong. They should be protected and insulated if they whistleblow and tell shareholders or the public in general what is going on. That was the key problem with Enron. Accountancy firms often have an intrinsic interest in the fee structure, and the Secretary of State could reflect on that. Would she be good enough to give me a response?

Ms Hewitt: The hon. Gentleman raises an important point. A crucial part of our proposals for company law reform is to spell out in statute the duties of directors. One of the deeply unsatisfactory features of current company law is that it is almost impossible for a non-executive director to find out what his or her legal duties are, because they are buried in several different statutes and in case law. We are also proposing that independent directors should be able to get advice from Companies House about the application of those duties.

On the hon. Gentleman's specific point about how we protect directors who are whistleblowers, we will consider whether the legal protection that we have already put in place for whistleblowers needs to be strengthened through company law.

Mr. Tam Dalyell (Linlithgow): Is it generally true, or is there a soupcon of special pleading in relation to small auditors, that if non-audit services are divorced from auditing, the cost of auditing goes up not marginally but significantly? That problem affects many small companies.

Ms Hewitt: I am not sure whether the provision of non-audit services is an issue for small audit firms. It has been raised as a matter of concern in relation to large audit companies that can secure substantial fees for non-audit services to clients for whom they also provide audit services. I am not sure that the same concern applies to small audit firms, which tend to concentrate on purely audit and accountancy services.

Adam Price (East Carmarthen and Dinefwr): The Secretary of State is right to eschew complacency, but does she accept that doubts will persist for as long as the accountancy profession is effectively judge and jury in relation to complaints made against it, meeting behind closed doors so that there is no opportunity for the quality and extent of investigations to be evaluated?

Will the right hon. Lady accompany her rather timid proposals with an undertaking to consider more radical ideas for reform, including the establishment of a fully independent regulatory system, a complete separation of audit and non-audit practice, making the issuing and audit

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of defective accounts an offence in law, and the imposing of fines commensurate with the financial costs of malpractice—to be paid to those affected rather than, as is currently the case, to accountancy bodies themselves?

Ms Hewitt: I have already made plain our approach to the separation of non-audit from audit services. As for the investigation of complaints and breaches of the disciplinary rules, following the creation of the Accountancy Foundation we have seen a strengthening of the independence of the investigatory system. Nevertheless, I am not satisfied with the present position, which is why I announced this afternoon that we would review the entire regulatory structure. One option that may be considered is a move to the fully independent regulatory system that the hon. Gentleman suggests.

David Taylor (North-West Leicestershire): I draw the House's attention to my entry in the Register of Members' Interests as a member of the Chartered Institute of Public Finance and Accountancy.

May I congratulate my right hon. Friend on her statement, and on the priority she is giving to driving up standards in corporate governance and financial reporting? However, following the remarks of the shadow Secretary of State for Trade and Industry—a preface that I never thought I would use in this place—I think there is a case to answer in relation to the treatment of the private finance initiative and public-private partnerships. I think that the question of the National Audit Office, and that of the international standards of best practice that my right hon. Friend mentioned, need to be re-examined.

Of course it is a bit rich for the Conservatives to talk of something that originated in the dying days of the Major Administration when they had lost control of public borrowing, but—as is made clear in early-day motion 1668—there is great unease in the profession, which fears that this is a device to wipe legitimate Government debts from the Government balance sheet. If we are to have a greater effect on the matters that my right hon. Friend has cited, our own house ought to be clean and clear.

Ms Hewitt: Public-private partnerships are not, as my hon. Friend seemed to imply, a way of trying to keep public sector debt off the balance sheet. PPPs are designed to add private finance to infrastructure investment where it is badly needed, and to introduce more innovation in the provision of public services along with better management of, in particular, large-scale infrastructure projects.

Complications arise when it comes to assessing the risk-sharing that takes place in PPPs, but I think we are getting better at that. I entirely endorse the principle of transparency commended by my hon. Friend, which is precisely the principle that my right hon. Friend the Chancellor has adopted.

Increasingly, PPPs are fully reflected on the public-sector balance sheet. The Office for National Statistics, which helps to audit the risks and the accounts, has been placed on an independent footing by the Government.

Mr. Andrew Tyrie (Chichester): I do not think that that will do. Everyone who has looked into the matter

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knows that the treatment of the PFI and PPPs in the public accounts is manifestly inadequate. Everyone knows that a number of contingent liabilities should almost certainly score in the accounts, but they do not. Following the many letters of comfort that have already been written, surely some value should be placed on them and they should score above the line, as they would in many cases in the private sector. When I raised this matter with the Chancellor, he said "We are following best private-sector practice." The obvious rejoinder was "We have just had some Enron economics."

In every other respect, unfortunately, I rather agree with what the Secretary of State has said. I thought her statement excellent, and I feel able to support it. My only question is this: a number of the proposals will involve a substantial increase in the compliance burden on firms so when the proposals are presented, will the Government publish a rigorous assessment of the full compliance burden?

Ms Hewitt: I simply do not accept the hon. Gentleman's remarks about the standards of public accounting. The fact is that we are one of the very few countries that fully comply with the international, generally accepted accounting practice standards for public-private partnerships. We are following international standards and international best practice in that respect.

On the hon. Gentleman's other point, which was rather more relevant to my statement, we are looking and will look carefully at the compliance costs. But I repeat what I said in my statement, and I hope that he will accept it: a more robust regulatory framework and a system of financial reporting in which people can have full confidence is hugely to the benefit of our businesses, our investors and our capital markets alike.

Mr. Mark Lazarowicz (Edinburgh, North and Leith): I particularly welcome what my right hon. Friend said about strengthening the rules on the consultancy work that auditors can undertake, at least in the case of larger companies. I urge her to give guidance to the working group to make those rules as strong as possible and to move to a position where the general rule is that auditors should not carry out consultancy work for the firms for which they carry out an audit. Does she accept that there will always be a problem with public confidence and a risk of conflict of interest when an accountancy firm receives large fees from a company to act as an auditor while receiving fees for non-audit services whose very continuation depends on the audit wing of the firm giving the company a clean bill of health?

Ms Hewitt: My hon. Friend makes an important point. Some principles are already in place, in particular the rule that auditors should not make management decisions or audit their own work, but I think that the group's approach is sensible. It will look at a much more careful definition of the kind of non-audit services that it would not be acceptable for auditors to provide—those that do not cause any threat to the independence of the audit and those that may be acceptable but only with proper safeguards. A more careful analysis of the different kinds of non-audit services that may be provided by audit firms will provide the basis for much better and more transparent decision making in the sector.

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