Contractor accountants might be interested to hear that the government is planning to merge the Financial Reporting Council and the Financial Services Authority to form a companies commission like the Securities and Exchange Commission in the United States.

On Monday the Treasury published the proposal which forms part of their plan to reform UK financial regulation. The paper entitled ‘A new approach to financial regulation’ said that the government believes there is a strong case for merging the two bodies to create a new regulator with responsibility for the stewardship of primary market activity, audit, company reporting and corporate governance. The new regulator would become the responsibility of Vince Cable, the business secretary.

The document points out that currently there is no one institution that has the authority, responsibility or powers to monitor the entire system and respond to potentially destabilising trends. This failing became obvious during the recent financial crisis. The regulators didn’t fully identify the underlying problems that caused the credit crunch and once the first signs of trouble became apparent they were unable to cope.

At present, the FSA’s remit is to monitor and regulate global investment banks and small local financial advisers. The Bank of England is responsible for financial stability, although it has no tools to enforce it, and the Treasury is tasked with maintaining the legal and institutional framework.

The coalition plans to set up a Financial Policy Committee which will be housed in the Bank of England and will ensure the UK’s financial stability. The FPC will receive macro-prudential tools to enable it to deal with systemic risks to financial stability.

The government also proposes to set up a new consumer protection and markets authority which will look out for the interests of consumers and promote confidence in financial markets and services.

© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Four colors by Tambako the Jaguar

The chief financial regulator, the FSA, wants new powers to censure, fine or even disqualify accountancy and audit firms.

A new report criticises auditors over their failure to scrutinise management adequately in the run up to the financial crisis. The report accuses auditors of showing a disturbing lack of scepticism.

The FSA says it now needs more powers of enforcement so it can deal with individual cases of regulatory concern.

Currently, officials from the FSA only meet auditors once a year but they now want to meet then several times to discuss any potential issues before year ends. The Association also wants to have direct access to listed companies’ audit committees so that they can discuss audit issues.

Michael Izza, the chief executive of ICAEW, said any reform of the audit profession needs to be based on evidence. He defended auditors, saying they had not failed and he flatly rejected that there had been a fundamental failure in auditing processes.

He stressed that last year’s Treasury select committee had determined that there was little evidence to show that auditors had failed in their duties towards limited company contractors.

Izza did agree that there were lessons to be learnt from the crisis and the accountancy profession was asking itself how to evolve the current audit model to meet the ever changing needs of the market. However, changes should focus on the actual situation, he said.

The head of audit at PwC UK, Richard Sexton, said that the FSA’s perception of an auditor’s responsibilities appears to differ from that of the auditing profession. Auditor’s view their role as one of making sure management has the right evidence to back up its assumptions, not to present them with alternative views.

© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: soma dispenser by Idle Type

It seems slightly paradoxical that while freelancers frequently earn more than their permanently-employed colleagues, they routinely have issues trying to obtain mortgages. This problem arises when you try to demonstrate to the mortgage provider that you can actually afford it.

Many providers will want to see three years of accounts for your business, in order to ensure you have a consistent income stream. Clearly if you are new to the business, or have changed your limited company in recent years, this may not be possible.

A further complication is if you pay yourself a tax-efficient low salary and take dividends to top up your income. Some providers do not take account of dividend payments – they are, after all, not supposed to be a regular occurrence – and so greatly understate your potential borrowing capacity.

One option is the self-certified mortgage. Self-certification was originally aimed at the self-employed worker or those with irregular incomes such as seasonal holiday workers. Recently they have been extended to freelancers with their own companies and do offer one way forward. However, the suppliers see them as a greater risk and will expect both larger initial deposits and higher interest rates as a result.

If you have been trading more than three years and can provide proof of a consistent income at a suitable level, then you should not have a problem obtaining a mortgage, even in these very risk-averse times. If you can not, then self-certification may be the only option: even then you might consider moving to a more traditional mortgage deal after a few years, when your supplier will know you are a good risk.

There are several financial companies who specialise in obtaining mortgages for freelance contractors. They have studied the market and have a more informed view of the risks of supplying freelance workers. They should be your first port of call.

Finally, a word of warning. Misrepresenting your income to get a mortgage, or any other financial advantage, is a criminal offence. The FSA has recently taken steps to prevent mortgage brokers taking this route. Apart from the legal risks you face, you may find yourself financially over-stretched, so be honest about your income.

© 2009 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: LEGO house by Atsushi Tadokoro