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Programming note: tomorrow’s Opening Quote will be the last of the year. We will be back on January 6 after a two-week break for the holidays.

Who guards the guards? Everyone now, it seems. Carillion’s collapse, in January 2018, brought auditors back in the spotlight. With the publication of Donald Brydon’s review on Wednesday morning, we now have the third big report into the profession since Carillion’s demise. Last year, Sir John Kingman’s review examined the watchdog, recommending the Financial Reporting Council be scrapped and replaced with a new, fiercer regulator. Then the Competition and Markets Authority suggested an operational separation of audit and consulting businesses.

Now Sir Donald has proposed an overhaul of the very meaning of what an audit is — and what auditors must do. “The purpose of audit is to help establish and maintain deserved confidence in a company, in its directors and in the information for which they have responsibility to report,” Sir Donald decrees.

That is far broader than the situation now — and hands a lot more responsibility to auditors. Accounts would no longer be certified as giving just a “true and fair view” of a company’s financial position. This definition has limited the role of audit firms and got them legally — if not morally — off the hook. A broader statement of the company’s “resilience” would be brought in to replace the “going concern” language used at the moment. Alternative performance measures beloved of management, and key performance indicators used to determine executives’ pay, would be subject to audit. So too would the reserves companies need to make payouts to shareholders, a factor in several recent collapses.

Taken together, the three reviews would result in a sweeping overhaul of the profession. Now the government just needs to actually implement them.


Pearson’s chief executive John Fallon is leaving, after seven years marked by lacklustre share price performance. Under his leadership Pearson has shifted its focus from a broad publishing group to one focused almost entirely on education (it sold the FT in 2015). This morning it also announced the sale of its remaining 25 per cent stake in Penguin Random House to Bertelsmann. The deal generated net proceeds of $675m (£530m), valuing the business at around $120m more than when Pearson last sold a stake two years ago. Pearson will return £350m to shareholders through a buyback. Russell Reynolds are handling the recruitment process for Mr Fallon’s successor. He will retire in 2020 once that person has been chosen.

NMC Health has hit back after becoming the latest target of short seller Muddy Waters on Tuesday. Muddy Waters’ report, which raised “serious doubts” about the healthcare operator’s finances, wiped almost £2bn off the FTSE 100 healthcare operator’s share price. NMC described the report on Wednesday morning as “principally unfounded, baseless and misleading”, with “many errors of fact”. It has promised a detailed response once it has had a chance to plough through the 34-page document, but said that it had nothing to add to previous disclosures.

Finally, Royal Dutch Shell has revealed it paid no corporate income tax in the UK in 2018 despite pre-tax profits of nearly $731m. Tax refunds related to the decommissioning of North Sea oil platforms helped offset the profits. Parliament’s spending watchdog warned earlier this year that dismantling old oil and gas rigs could cost taxpayers £24bn. To help offset the expenses, energy companies can claim tax relief. Shell got refunds totalling almost $115m. It said more than 40 per cent of the UK pre-tax profits were attributable to overseas joint ventures where taxes were paid in another jurisdiction.

Job moves

The chief executive of Wolseley UK, the underperforming plumbing business that FTSE 100 group Ferguson is spinning off, has quit. Mark Higson is “stepping down to pursue an opportunity outside of the company” and will be replaced by Simon Oakland as interim chief executive from January 31.

Beyond the Square Mile

Fiat Chrysler and France’s PSA, the owner of Peugeot, have struck a merger pact that would create the world’s fourth-largest carmaker by output with combined revenues of €170bn and total vehicle sales of 8.7m. The two companies said they had signed a binding “combination agreement” for a 50/50 tie-up. The deal, if agreed, would reshape the automotive industry as it undergoes a period of transformation, with significant expenditure required for the development of electric vehicles and self-driving systems.

New York Life Insurance has agreed to pay more than $6bn to purchase a unit of Cigna that sells employers accident, disability and life insurance plans that they can offer to their employees. New York Life was founded in 1845 and is one of the largest insurers in the US. It does not trade publicly but is a mutual company owned by its policyholders. The purchase of the Cigna unit would make New York Life one of the largest providers of non-medical insurance for group benefit programmes.

Apple, Cisco, Daimler and BMW have urged the European Commission to take action on patent abuses that are hampering the development of self-driving cars and other connected devices. The 27 companies that signed a letter to the Commission also includes Ford, Continental, Dell, Lenovo and Sky. The companies claim to have invested more than €45bn in research and development and own more than 200,000 patents and patent applications and say they are being denied licences for essential patents on fair terms.

Closing quote — essential comment before you go

‘The only constant has been disruptive innovation’ John Gapper reflects on 16 years of writing business columns as he prepares to move to a new role.

FT View Having just escaped the existential threat of renationalisation under a Labour government, water companies are now in the crosshairs of the industry regulator. They need to make the case for private ownership.

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