Building Societies Act 1986 (International Accounting Standards and Other Accounting Amendments) Order 2004

Part of the debate – in the House of Lords at 12:05 pm on 16th December 2004.

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Photo of Baroness Noakes Baroness Noakes Shadow Minister, Economic Affairs 12:05 pm, 16th December 2004

My Lords, I thank the Minister for introducing this complex order. The House will remember, from our debate on the equivalent Companies Act regulations in November, that I said that we on these Benches are enthusiastically in favour of International Accounting Standards because we believe that global capital markets will benefit from common accounting standards.

We had some concerns, which we outlined, on 5 November. In particular, I asked the noble Lord, Lord Triesman, whom I appear to have frightened off, what the Government intend to do about IAS 39. He replied:

"On IAS 39, the UK would have unquestionably preferred full endorsement, but it has not proved possible. The key short-term priority was to provide companies with clear guidance on the implications of the partial endorsement decision. We are working with the ASB on this guidance".—[Hansard, 5/11/04; col. 575.]

I ask the Minister what progress the Government have made on producing guidance with the Accounting Standards Board on IAS 39, which is a matter of some concern to everyone who intends to apply international accounting standards.

Of course, this particular order has a very narrow scope, applying only to the building society sector, which now has only 63 building societies in it, ranging from the very large, with over £100 billion worth of assets, down to the extremely small, with £18 million in assets.

At first sight, the optional nature of International Accounting Standards seems appropriate for this sector, given the diversity within the sector. On the other hand, it may seem strange to have such a small sector being accounted for on different bases, given that they are all subject to prudential supervision. My question to the Minister is whether the FSA is content for the adoption of international accounting standards to be left to the building societies themselves or whether it would have preferred to see common use of accounting standards.

The main point I want to raise with the Minister today concerns not the international accounting standards but the implementation of the modernisation directive. To that extent, what is happening in this order goes beyond what has already been done for companies. Paragraph 4 of the order adds a new Section 75A to the Building Societies Act 1986 to create the requirement for a business review; and the noble Lord outlined what should be in that business review. I am sure that the Minister will be aware that for companies this particular review was included in the draft order implementing and operating a financial review.

That draft order, which was issued by the DTI earlier this year, was roundly and rightly criticised by both business and the accounting profession. The Government climbed down on the matter in a Written Statement on 25 November. We have yet to see a revised order. Indeed, the Government have not yet had the courage to publish the results of the consultation they promised. The DTI's website makes no reference yet to the U-turn.

So, for companies there was a draft order implementing the business review but there is not one at the moment. I have a few questions for the Minister arising out of that. First, I should be grateful if the Minister could explain why the Government are pressing ahead with this requirement for building societies when it is not doing so at the moment for companies.

Secondly, will the Minister explain why the business requirements for building societies do not have any exemptions for small or medium-sized building societies? The equivalent companies order which we had in draft provided for the usual small company exemption.

Thirdly, the original draft companies order provided for auditors to report on the consistency of the business review with the accounts, but I could not find any equivalent reference to that in the building society order.

Lastly, the DTI's announcement effectively said that implementation certainly of the operating finance review, and I assume also the business review, is to be deferred for companies until 1 January 2005, which in practical terms means an extra 12-month leeway for those with a December year end. I hesitate to say that the right hand of government does not know what the left hand of government is doing because we know that the Treasury likes to believe that it is omniscient as well as omnipotent. But if the Treasury do know what is going on in the DTI, perhaps the Minister could explain why the Treasury has a different policy agenda for building societies to that for companies, because the main justification for these orders was to stay in step with companies.