Advising on the Act: the UK Companies Act Consultative Committee and Accountancy Advisory...

Introduction

The Cohen Report on UK Company Law Amendment recommended the appointment of a committee to advise the Board of Trade on matters arising in the administration of the Companies Act (Cohen Report, 1945, para.176). Two committees were established, a general consultative committee and an accountancy advisory committee. Together they represented a forum for the interaction of state-professionbusiness concerns; they advised the Board of Trade (BOT) on a number of matters arising from the 1947 and 1948 Acts, and on related matters, but their work was carried out with little publicity and has received little acknowledgement in the accounting literature.1 The purpose of this article is to illustrate the difficulties in establishing the committees, not least because of the fragmented nature of the accountancy profession, and to identify the accounting and other problems on which the BOT sought the committees' guidance, to consider the advice the Board was given and the action that was taken. Research was carried out primarily on files in the National Archives (formerly the Public Record Office); these files include agenda and minutes of the committees, together with briefing notes, correspondence and internal memoranda.2

Advisory committees in government

The use of advisory committees has been a feature of British Government since at least the seventeenth century but grew in importance during the twentieth century (PEP, 1960, pp.2-3) following the Haldane Report on the Machinery of Government (1918), which advocated greater use of advisory bodies (Vernon & Mansergh, 1940, p.21; PEP, 1960, p.6,9). Their role in government in the first half of the twentieth century has been examined by, inter alia, Vernon and Mansergh (1940), Wheare (1955), and PEP (1960), while more recent developments, including the growth of "task forces" and "advisory non-departmental public bodies" have been scrutinized by, inter alia Weir and Beetham (1999) and Barker et al. (n.d.). It is recognized that such bodies may have a valuable role, in providing expert advice on specialized issues from national experts, providing a quick and flexible response on matters of concern and bringing about a partnership between government and other interests (from Opening up Quangos [Cabinet Office, 1997], cited in Wright, 2000, p.279).

In 1949, shortly after the establishment of the two committees examined here, the Prime Minister, Clement Atlee, reported to Parliament that there were 700 central or national advisory bodies (Wheare, 1955, p.46; PEP, 1960, p.10) though excluding subcommittees and temporary committees the figure was something like 470 (PEP, 1960, p.10). By 1958, a figure of 484 has been suggested (PEP, 1960, p.10). Although these committees could be divided into consultative committees, where Government representatives met people from outside government, expert committees, formulating recommendations for action in a particular field, and committees for independent administration, in practice few committees fell into these clear-cut divisions (PEP, 1960, pp.14-18), hence the confusion about terminology referred to later under the heading "programme of work". Similarly, the frequency with which committees met varied considerably and it has been noted that while Board of Trade committees such as the Consultative Committee for Industry and the Advisory Committee on Commercial Information Overseas sat regularly, "committees concerned with company law, accounting and insurance" were less active (PEP, 1960, pp.25).

Studies of advisory committees show that it is impossible to generalize on their value and influence (Wheare, 1955, p.62). A minister that dislikes the advice can usually find counter-arguments elsewhere (PEP, 1960, p.98) and both ministers and civil servants see the advice given as no more than that - advice (PEP, 1960, p.lll).Their influence is likely to be strongest on non-party-political issues (PEP, 1960, p.112). Committees are likely to be of least value when set up to placate public opinion, or to keep 'experts' and others happy, and of most value when officials in a department feel the need for knowledge not available to them within the department (Wheare, 1955, pp.62-3). Wheare (1955, p.65) points to an unexpected feature of such committees: that they can strengthen the hand of government officials who "have the opportunity to 'nobble' their most expert and influential potential critics". Because the committees work in secret the experts can give advice but are not able to comment on that advice in public. Things have not changed greatly since the PEP and Wheare studies. Weir and Beetham (1999, p.221) note that departmental officials, to whom the committees are accountable, have "powerful leverage, if required, over the advice they proffer". They refer, too, to the secrecy with which such bodies operate: "there is no officially recognized principle of public access to their activities ... Their discussions are kept secret, their agendas and minutes are scarcely ever published ... The public, specialist observers and members of interest groups which do not have representatives on the committees are excluded from dialogue with them and consultation is generally minimal" (Weir & Beetham, 1999, p.227).

It is in the light of these general observations about advisory committees, and against the historical background set out in the following section, that the work of the Companies Act Consultative Committee and Accountancy Advisory Committee is examined.

Background

The 1948 Companies Act, as a consolidation of the Companies Act 1929 and the Companies Act 1947, was a milestone in the development of corporate reporting (Patient, 1992, p. 19) and for more than 30 years the consolidated act directly influenced accounting practices in the UK (Bircher, 1991, p.283). It was based on the recommendations of the Cohen Committee, which saw the purpose of company law as ensuring that shareholders, creditors and the public had as much information about companies as they could reasonably require and as making it easier for shareholders to control management (Cohen Report, 1945, para.5).

The recommendations of Cohen, and the provisions of the Act, largely reflected submissions made by the accountancy profession, in particular the Institute of Chartered Accountants in England and Wales (ICAEW) (Bircher, 1991, pp.259-64), such that "it could be argued that the accounting requirements that ultimately formed part of the Companies Act 1948 represented law drafted and justified by accountants rather than lawyers" (Napier & Noke, 1992, p.40). Drafts of the accounting provisions of the 1947 Act had been given to ICAEW members Russell Kettle and Thomas Robson for comment (Bircher, 1991, p.266). Key provisions of the Act included increased disclosure requirements, provision of a profit and loss account, distinctions between reserves and provisions, and compulsory group accounts (CA 1948 ss 148-53,8th Schedule). The category of companies that did not have to file accounts with the Registrar of Companies was limited to "exempt private companies", while certain exemptions from the requirements about reserves were granted to banking, discount and insurance companies, and such other class of companies as the BOT prescribed (CA 1948 8th Schedule Part III). Auditors were required to report whether the accounts gave a "true and fair view" (CA 1948 9th schedule) rather than the "true and correct view" required by the 1929 Act. Moreover, persons authorized to audit the accounts of limited companies, other than exempt private companies, had to be members of a UK body of accountants recognized by the BOT or be individually authorized by the BOT as having similar overseas qualifications or qualified by experience as an employee of a member of a recognized body, or having been in practice as an accountant prior to 6 August 1947 (CA 1948 s.161[1]).

During the period covered by this study, the 1948 Act remained the principal act, though it was augmented with the further disclosure requirements of the 1967 Act. During the 1950s and 1960s both accountants and lawyers seemed to have shared a complacency about accounting related issues (Napier & Noke, 1992, p.41) and though, as this study illustrates, there were some specific problems on which the BOT sought advice from the two consultative and advisory committees established, there appears to have been little demand for fundamental reform until 1969. This was despite the changes in the politics of the government during the period of this article (Labour to Conservative in 1951, Conservative to Labour in 1964, Labour to Conservative in 1970.) Throughout the period up to 1969 the ICAEW continued to issue non-mandatory recommendations on accounting principles and the BOT recognized this as being "a beneficial service" provided by the Institute for business and the professions (Noguchi, 2005, p.7). As will be seen later, even when demands for reform grew, there is no evidence that the issues were considered by these committees.

Setting up the committees

PEP (1960, pp.35-60) has discussed the problems of the composition of any government advisory committee, comprising "problems of quality, of balance, of harmony and of external prestige" (PEP, 1960, p.35) and notes how the usual method was by informal consultation with relevant organizations (PEP, 1960, p.39). The process of establishing the committees discussed in this study is a case study of politics, and intra-professional, inter-professional and personal rivalries, fuelled no doubt by a perception of the potential importance of the committees to the self protection of professional interests.

Initial proposals were made in September 1947 by E.H.S. Marker,3 Under Secretary at the BOT, for a consultative committee to advise generally on the new Act and an accountancy consultative committee to advise on matters arising from the accounting provisions. The consultative committee was to be chaired by him, with E.A. Shillito from the Treasury, Lord Rennell, Sir Arthur fforde (Linklater and Paines), J.C. Burleigh (Thomson McClintock), and Geoffrey Heyworth (Lever Bros) as members, together with representatives of the Stock Exchange and '.he Trades Union Congress. However, although Harold Wilson, President of the BOT, was prepared to have fforde, he wanted also "an independent lawyer" and suggested Professor E.A. Goodhart, Professor of Jurisprudence at Oxford and a fellow of University College where Wilson had been economics tutor and domestic bursar. He preferred not to have Rennell, and wanted "someone like Bertram Nelson" to add a provincial flavour (BT 58/446).

The objection to Rennell may have been based on personal or political animosity. The nomination of Goodhart depended almost certainly on personal and political grounds and no doubt illustrated an observation subsequently made about committee membership by Lady Howe: "Ministers are not risk takers. They want people who see the world in the same way as they do, so the same type of guys get appointed" (Guardian, 10 April 1991, cited in Weir and Beetham, 1999, p.222). Marker was not happy with Goodhart, noting that there was no one to equal fforde and that "From our experience of Professor Goodhart on the Cohen Committee, we doubt whether his qualities, undoubted as they are, would make an effective contribution to a committee of this kind"4 (BT 58/446). Wilson nevertheless insisted.

If the exclusion of Rennell and the appointment of Goodhart reflect the politics of committee membership, so too may have Wilson's nomination of Bertram Nelson. In this case, however, it also became a matter of intra-professional rivalry. Nelson was a partner in a Liverpool firm of Incorporated Accountants, Lithgow Nelson & Co. He had given evidence to the Cohen Committee as a member of the Finance and Taxation Committee of the Association of British Chambers of Commerce and was honorary secretary of the Merseyside Civic Society. Although he later held a number of public offices, he appears to have held no other in 1947, though Marker noted that Nelson had been in close touch with the board since Cohen reported and "he has always been most helpful" (BT 58/446). Wilson was at this time MP for Ormskirk in Lancashire but there is no evidence as to whether the association with Nelson was a political one or a civic one. Importantly, the fact that Nelson was an accountant does not seem to have counted with Wilson, who had no objection to Burleigh being an accountant member of the committee; Nelson was "to add a provincial flavour".

Marker discussed the proposals with Sir Russell Kettle (Deloittes, a member of the English Institute), after which he felt "not at all sure" that having Burleigh (Scottish Institute) on the Consultative Committee would be acceptable on personal grounds, and that Kettle would have to be the accounting member. The accountancy committee would consist of Kettle, Thomas Robson (Price Waterhouse, English Institute), Burleigh and an Incorporated accountant. Marker noted that "the Certified accountants are numerous but unimportant and, in Kettle's view, useless". However, he was aware of the rivalries between the English and Scottish Institutes and the Incorporated accountants, pointing out in a memo to Sir Edward Hodgson (then Principal Finance Officer at the BOT) that "if Sir Russell Kettle and Bertram Nelson are on the Consultative Committee the Scots may feel aggrieved. If on the other hand Mr Burleigh is a member of the Consultative Committee the English chartered bodies might equally be aggrieved". Having three accountants on the consultative committee would overweight it from the accountancy angle so he suggested appointing all of the accountants as "additional members of the committee for accountancy purposes" (BT 58/446).

Hodgson realized that a solution to save the face of individual bodies might have the result of downgrading the entire profession. "If all the accountancy men are put in as 'additional members for accountancy purposes' it will look like a subordination of this important aspect to no more important interests" (BT 58/446). Noting Kettle's outstanding position in the accountancy world, he suggested that he be a full committee member and the others appointed to a separate committee.

The proposals were discussed with Sir Harold Howitt, chairman of the inter-accountancy-bodies Coordinating Committee, at the end of October 1947. Marker encountered another problem: "a complication is, I have reason to believe, that he would himself like to take a hand". Howitt proposed that the Accountancy Committee be made up of two members of the English Institute, one Scot, one Incorporated accountant and one from the Certified body. There should be an accountant on the Consultative Committee but he should not also be a member of the Accountancy Committee. He effectively laid claim to the place on the Consultative Committee for himself by nominating other potential contenders - Kettle, Robson and Burleigh - as possible members of the accountancy committee. He suggested various members from the Incorporated Society and the Certified Association, but reflecting an earlier observation about the Certifieds that "those who are worth having are few and the older ones are obstructive" he emphasized that the Board should "avoid at all costs any of the following: Messrs Fairbrother, Parkes and H.E. West" (BT 58/446). If Nelson were a member of the Consultative Committee it should be as a representative of the Association of British Chambers of Commerce, not as an accountant. As a result of soundings during the following month, Howitt and Nelson were appointed to the Consultative Committee and the Accountancy Advisory Committee was established under Kettle as Chairman, with Robson, Burleigh, E. Cassleton-Elliott (past president of the Incorporated Society) and EG. Wiseman (past president of the Certified Association) as members.5

Although Wiseman was a member of the Advisory Committee from its inception until August 1955, when he resigned to make way for a younger man,6 the Association did not have a member on the Consultative Committee, a matter of concern to them, which they expressed to Marker. Marker replied that "membership of the committee was nothing to do with accountants" and that "it was purely coincidental that a member of the Institute and a member of the Society were on that committee because they were there as representatives of non-accounting organisations" (Shackleton & Walker, 1998, p.78). Shackleton and Walker describe this as a disingenuous response (Shackleton & Walker, 1998, p.78). It was not, however, as disingenuous as it might have seemed. Nelson was a political appointment "to give a provincial flavour". Recording his affiliation to the Chambers of Commerce was to make clear that he was not there as an accountant. Although Howitt was a past president of the English Institute, as Chairman of the Coordinating Committee he could be said to be representing all of the major accountancy bodies.7 Moreover, the letters of appointment from Harold Wilson to the members of the Consultative Committee stressed that "the members are appointed in a personal capacity and not as representative of any particular interest or organisation" (BT 58/446). This appears to have been standard practice in appointing to committees: "the appointments are always personal ones and the views expressed are taken to be their own. They are under no obligation to present the attitude of the body which suggested their name" (PEP, 1960, p.43).

It says a great deal about rivalry between the accountancy bodies that Marker does not appear to have encountered similar problems in appointing Committee members from the legal profession, the TUC or the Stock Exchange. Apart from Wilson's insistence on Goodhart's membership, there appear to have been no problems with the Bar or the Law Society in appointing Sir Sam Browne from Linklater's (Marker's original choice, fforde, having told him that he was leaving the City). The appointment of WB. Beard of the United Patternmakers' Association appears to have given rise to no inter-union rivalry nor do the regional stock exchanges appear to have disputed the appointment of J.B. Braithwaite. Tyser, from Lazards, was appointed as the member with knowledge of finance houses.

However, inter-professional rivalries caused a problem with the Federation of British Industry following Harold Wilson's announcement of the appointment of the committees in the House of Commons on 26 January 1948. Sir Norman Kipping wrote to the President drawing attention to "a little difficulty that has arisen", pointing out that Hansard showed the membership in such a way as to suggest that members had been selected in part in a representative capacity. As a result, the TUC and Association of Chambers of Commerce appeared to be represented, but not the FBI. "The situation is a real embarrassment to us here and gives the public appearance of being rather like a snub" (BT 58/446). He suggested an additional member representing the FBI. He received a reply that members did not represent particular interests but that regard had been had to the different fields in which expert help was desirable.

Programme of work

The terms of reference of the Consultative Committee (CC) were "To help the Board of Trade in a consultative capacity on matters arising in the administration of the Companies Acts". Those of the Accountancy Advisory Committee (AAC) were "To consider matters arising from the provisions of the Companies Act relating to accounts and to advise the Board of Trade thereon". As a later note records, "Apart from whatever difference may be inherent in these words ("consultative" and "advisory") their functions are similarly described. Both advise on matters referred to them by the Board of Trade and members are free to initiate any matter for discussion" (BT 58/446).

The programme for both committees was set out in a joint address by the President at their first meetings on 2 February 1948. The immediate issues were identified as:

* the steps necessary to bring into effect the new provisions relating to placings;

* the steps necessary to meet transitional difficulties in complying with the new accounting provisions;

* the extent of any concessions relating to the exemption of shipping from having to disclose inner reserves, and the safeguards necessary;

* the bodies of accountants to be recognized by the BOT as qualified to audit accounts of companies;

* advice on the draft Public Accountants Bill, "particularly on the amendments required to make the bill non-controversial. There is general agreement that the accountancy profession ought to be regulated but there is little hope of getting a bill through Parliament in any reasonable time unless it is non-controversial."

In the longer term, the Board was looking to the committees to advise on the exercise of the Board's discretionary powers of investigation, and to the accountancy committee for guidance on any modifications necessary to the accounting provisions of the Act. The President concluded, "As general matters and accountancy matters are not wholly inseparable [sic] it is important that close liaison should be maintained between the two committees" (BT 58/573).

The meeting of the CC immediately following the President's address recognized the importance of accountancy matters by agreeing that when such matters were considered Kettle should sit with the committee. Other matters considered at that meeting included the banking and discount companies and finance companies recognized for the purposes of the First and Third Schedules of the Act and the prescribed stock exchanges for placings. Although the Public Accountants Bill was on the agenda, Shillito reported that the Treasury thought there was a great deal in the objections of the National Association of Local Government Officers (that the Bill would exclude accountants in local authorities and statutory undertakings who could properly claim to be public accountants) and argued that government departments should be in agreement on the bill before the committee took it further. Howitt, however, endeavoured to speed progress on the Bill by querying whether it was wise to bring section 23 of the 1947 Act (on the recognition of auditors) into force before it was superseded by the Public Accountants Bill (BT 58/573).

The first meeting of the AAC also followed the Presidential address. At that meeting, Kettle commented on the inadequacy of the answers to parliamentary questions about the coming into force of various sections of the Act and emphasized the need for wider publicity. Advice was sought by the Board on practical issues relating to the presentation of a charity's accounts and the continued inclusion of interim unaudited accounts of African subsidiaries in the group accounts of Forestal Land, Timber and Railways Ltd. Taking the same line as the CC, the first meeting also agreed that if possible the bringing into force of section 23 should be deferred until the Public Accountants Bill had become law (BT 58/574).

Marker asked C.H. Chorley, Parliamentary Counsel, whether it would be possible to leave s 23 in abeyance, pointing out that "little mischief would be caused because "public and large private companies have auditors of repute for our protection and exempt private companies are dispensed from having auditors qualified under s 23". Chorley replied that while the Board had no power to make an order postponing the operation of s 23, it could refrain from making an order bringing it into effect (BT 58/573). However, the Board does not appear to have taken this further as the question of s 23 appeared on the agenda of the next meeting of both committees. This may be an early example of the Board ignoring advice with which it disagreed. Alternatively, it may reflect the Board's view of the likelihood of the Public Accountants Bill passing into law; despite the injunction in the President's address, there is no evidence in the agenda or minutes of subsequent meetings that any further consideration was given by either committee to the Public Accountants Bill.

Walker and Shackleton (1995, p.483) and Shackleton and Walker (1998, p.79) state that the formation of the AAC "ensured that the mainstream accountancy bodies were effectively given power by the Board of Trade to adjudicate over the claims of second tier organisations of accountants". This is arguably not the case. Both committees were charged with advising the Board on this matter and as the senior committee the ultimate recommendations lay with the CC. At the second meeting of the AAC on 23 February 1948 Kettle proposed that the accountancy bodies to be recognized be those qualifying under the Public Accountants Bill and the committee recommended this to the BOT (BT 58/574); however, to state that this was "determined" (as Shackleton & Walker [1998, p.79] put it) is too strong. On the contrary, when the CC met on 30 April 1948, it approved a proposal in a paper from Marker that all of the bodies specified in the Local Government Act 1933 should be recognized under s 23 - a different criterion for recognition (and one which again perhaps reflected the Board's view of the likely fate of the Public Accountants Bill) even if it produced the same result. The CC agreed to refer applications from bodies not presently recognized by the Act to the AAC and that Howitt and Nelson should sit with the AAC to advise the CC on these bodies. Significantly, it further agreed that if the AAC advised that the qualifications were inadequate the CC itself should consider the application (BT58/573). The following section considers the work of the committees in this regard, and in relation to the authorization of individuals under s 23(1)(b).

Recognition under section 23

Before the third meeting of the AAC Marker sent two memoranda to its secretary. The first one echoed the view of the CC, that if the committee's recommendations were negative "it may be that the matter should be further considered by an independent body, and the Board of Trade may then refer them back to the Consultative Committee". The second one raised the possibility of making recognition of a body of accountants dependent on the possession either of a royal charter or of a licence from the BOT to omit the word "limited" in its name, noting that "we can make our licence subject to whatever conditions we think proper and a licence can be revoked if the conditions are not complied with". However, Marker annotated his memorandum "Only a suggestion. Not to be taken too seriously" (BT 58/574) and there is no evidence that it was taken seriously at all.8

The third meeting of the AAC on 19 May 1948 considered applications from several second-tier organizations. One from the Association of International Accountants was later circulated and decided by letter. All were rejected largely on the grounds that too few members were qualified by examination. Only 2 out of 1262 members of the Society of Commercial Accountants appeared to be so qualified; none of the Faculty of Auditors was qualified by examination. The selfinterest of the major bodies obviously intruded on the deliberations, as a letter from Robson on the draft minutes of the meeting includes, "I suggest the deletion of the sentence about fee-snatching in relation to the Association of Practising Commercial Accountants" (BT 58/574).

The negative response of the AAC to the applications of the second-tier bodies led to Marker putting their cases before the CC at its meeting on 14 June 1948. He stated that, "the responsibility for the decision must not be put on the accountancy committee and therefore the views of the non-accountant members of the general committee would be particularly valued" (BT 58/573, emphasis added). Although he noted that "the recommendations that the various bodies should not be recognized seemed wise" Marker put their cases fairly. In a memorandum for the CC he pointed out that the Society of Commercial Accountants and the Association of Practising and Commercial Accountants could be ruled out as they had been formed after the setting up of the Coordinating Committee and there had been serious complaints about at least one of them. But he had nothing against the other three except for the examination question. He asked the committee to consider:

* the fact that there was nothing known against the good repute of them

* their members would be entitled to individual authorization

* the British Association and the International Association had large numbers of students who might suffer hardship if the bodies were not recognized

* if the applications were refused now it was doubtful whether they would ever be able to qualify because candidates would not join bodies whose status is doubtful.

In committee, too, Marker suggested that it might prove necessary to recognize the bodies subject to conditions such as a satisfactory disciplinary body and a high standard of examinations (BT 58/573).

This does not seem compatible with the suggestion that the mainstream accountancy bodies were "effectively" given the power of decision. Although the CC ultimately agreed to the recommendations of the AAC it was only after full discussion of the issues. Read (from the Chartered Institute of secretaries, an addition to membership of the committee at its second meeting), for example, said that he was impressed by the members of the Council of the International Association whom he had met, and it seemed to him a lively body. Shillito, on the other hand, expressed the Treasury's hope that the bodies would not be recognized, pointing out that application by the International Association for recognition as auditors under the Friendly Societies Act had been rejected. Aware that they might be perceived as acting in their own self-interest, Tyser noted that two of the non-accountant members belonged to professions in which stiff examinations had to be passed and, therefore, their views might be as biased as those of the accountants. Brown, however, remarked that it would be contrary to the intention of section 23 if all of the bodies in existence were recognized, and that it might be a good thing if bodies not recognized did not get new members (BT 58/573).

In a study of the professionalization of accounting, West has drawn attention to struggles among accountants, noting that "success in consolidating professional status is dependent on maintaining elitism by denigrating or excluding potential competitors" (West, 1996, p.90). West cites the study by Poullaos (1993) into the attempt by the Australian Corporation of Public Accountants to acquire a Royal Charter and how it was initially frustrated by the opposition of other accounting bodies concerned about their loss of status and market position (Poullaos, 1993, pp.225-6; West, 1996, p.89). He cites, too, Hoskin and Macve who have referred to the importance of the examination system in the professionalization of accounting (Hoskin & Macve, 1986, pp.132-3). In the AAC's consideration of applications from the junior accountancy bodies both of these aspects of the professional standing of the first tier accountancy bodies seem to have played a role, the latter aspect possibly providing camouflage for the former.

The area in which the AAC was given the power of decision was in agreeing the criteria for authorization under section 23(1)(b) covering accountants with overseas qualifications, those deemed to have obtained adequate knowledge and experience in the employment of a member of a recognized body, and those in practice before 6 August 1947. At the third meeting recognition was given to a number of overseas bodies subject to the members concerned holding or being proposed for the audit of a public or non-exempt private company (BT 58/574). The committee also recommended the procedures to be followed when application for recognition was made on the grounds of adequate knowledge and experience, or on the grounds of being in practice prior to passing of the Act. Here too, before recognition was granted the applicant was to be holding appointment as auditor of a public or non-exempt private company or in the process of being proposed for appointment as an auditor of such companies. In addition, "in all cases the bankers' and/or solicitors' reference must be in order" (BT 58/673). At the fourth meeting on 15 December 1948 a report was received that the Board had authorized 243 accountants under section 161(1b) (as s 23(1(b) of the 1947 Act had become in the 1948 Companies Act) and that 117 had been deferred, the bulk of which would be eligible once they had been offered a public or non-exempt private company audit. No more than six had been rejected - "a very satisfactory position" as so few were affected by the sub-section. The committee also dealt with difficult cases and appeals, and at that meeting considered and rejected two applications from individuals (BT 58/574).

The recommended procedures for recognition under s 161(1)(b) were applied consistently by the Board until they were challenged in June 1952 by W.S. Pope of Brackley. Pope had worked for 30 years for Fitzpatrick Graham & Co before establishing his own practice. Having been asked by the BOT for a reference from his bank manager or solicitor about his accountancy qualifications, he queried how a bank manager or solicitor could be expected to testify to his accounting ability. He received a reply that "the Board are following the advice of their Accountancy Advisory Committee" (a rare public reference by the Board to the work of the committee), which drew the response "If the Advisory Committee accept the word of a local bank manager before that of an eminent firm of Chartered Accountants then I give up" (BT 58/673).

Following consultation with Kettle, the BOT changed their practice to one of requiring a personal reference from a bank manager or solicitor. But some civil servants at the Board found even this difficult to justify.9 De Keyser pointed out that the Act did not provide for evidence of character. More importantly, he could not see how whether or not an applicant had acquired adequate knowledge and experience was affected by whether he had a prospective appointment that he could not undertake if not authorized. "How can unperformed work have any bearing upon knowledge and experience?". The Board's solicitor, RainsfordHannay, was unequivocal in his advice: the Board's discretion was limited to being satisfied that an applicant had adequate knowledge and experience and they had no power to obtain information not relevant to this (BT 58/673).

In August 1952, the Secretary of the AAC wrote to Robson (who had chaired the third meeting of the committee) that in view of the legal advice received the Board felt it could no longer maintain its requirements but that it welcomed the views of the AAC, Howitt and Nelson. Robson's reply addressed primarily the work issue and was based on the premise that the number of authorizations "seems to show that the problem is not of great importance from the standpoint of the public interest". He recalled that during the discussion in 1948 it had been appreciated that "on a strict reading of the section" the Board possibly had no right to demand evidence of audit work offered, but that the danger had been recognized of the Board being inundated with applications from people who might desire authorization "merely from the self-advertisement standpoint". His advice was to continue with the procedure lest, if it were dropped:

you may also have to relax it in regard to persons with overseas qualifications. There are some parts of the world where applicants might be glad to have an opportunity of stating on their notepaper that they have some kind of British Government qualification and I am sure that from a national standpoint we do not wish to encourage that. (BT 58/673)

This encouragement to the BOT to continue an unauthorized (and possibly unlawful) practice appears a clear case of justifying private concerns by appeal to the public interest.

A memorandum by J. Cowan in September 1952 noted that, "this appears to be a mixed question of law, policy and tactics on which ... I should like to follow the Accountancy Advisory Committee's advice if at all possible". Although the Board dropped the requirement for a personal reference, it proposed only a slight modification to the requirement for audit work being offered, set out in a letter to Robson in March 1953. Whereas the standard letter to applicants in advance of considering the application had previously referred to this requirement, it was proposed to omit this and decide whether the application could be granted before dealing with this point. If "yes" the Board would then notify the applicant of the requirement with an assurance that if no audit work were yet on offer the Board would act urgently when circumstances changed. "In individual cases, where the applicant objects to this course we would propose to consult the committee." Robson again replied on behalf of his colleagues. "It is important to guard against the danger emphasised on previous occasions ... We are not lawyers and do not venture to challenge the legal opinion of your advisers: we should have thought, however, that you need not be too legalistic in a matter of this kind." Despite him warning also that the approach might give rise to difficulties, the Board adopted it (BT 58/673).

It appears that applicants acquiesced in this unauthorized practice by the Board until in 1958 it was challenged again and the Board's solicitor again ruled against it on the basis that the authorization related to the status of a particular person and was not in respect of a particular company. The Board resolved to drop the requirement and the secretary of the AAC wrote to Robson (who since 1955 had been chairman of the AAC)10 inviting the committee's observations (BT 58/681). Robson agreed that it would be "inexpedient to continue the policy which has been followed hitherto", but pointed out that the policy had produced most of the benefit it was designed to provide and that it had prevented a lot of applications that might otherwise have been received. He showed a continued determination to exclude the unqualified, arguing that if the Board ignored its Solicitor's advice this "might indeed merely lead to publicity and stimulate applications by people who otherwise would not be aware of the legal position and but for the publicity would be content to refrain from making application" (BT 58/681). Although it seems that the committee's original advice was something the Board had been happy to accept, a memorandum from R.J.W. Stacy, Under-Secretary, remarks about Robson in 1952, "I think he treated the legal aspect of the matter rather cavalierly" and in a note of disapproval, presumably relating to the letter to Pope in 1952, records " we should not, as our predecessors have done, defend our decision by reference to the advice of the accountancy advisory committee. That advice ought to be confidential" (BT 58/681).

Proposed amendments to s 161

After several years of attempts by the Coordinating Committee to obtain legislation for the regulation of accountants, the presidents of the ICAEW, The Institute of Chartered Accountants of Scotland (ICAS), The Association of Certified and Corporate Accountants (ACCA), The Institute of Chartered Accountants in Ireland (ICAI) and The Society of Incorporated Accountants and Auditors (SIAA) wrote to the President of the BOT in May 1952 that they desired formally to withdraw the Public Accountants Bill proposed in June 1947 and instead proposed that amendments be made to section 161 of the Companies Act 1948 that:

* exempt private companies should have their accounts audited by a qualified person (subject to protecting the rights of those then auditing such companies)

* the recognized accountancy bodies should be formally specified in the Act; additions or removals should not be made except by resolution by both Houses of Parliament

* there should be clauses to protect the interests of all persons in practice at an appointed day, including overseas qualifications.

The letter suggested also that the Board might wish to use amending legislation to make other amendments to the accounts and audit provisions in the Companies Act thought necessary (BT 58/603). This letter was reported, without comment, in Accountancy in the context of the speech by the president of the Society (Accountancy, June 1952, p.191).

A paper prepared for the CC by the Insurance and Companies Department of the BOT described the main proposal as a "drastic and far reaching one" that would close the door to unqualified accountants who wished to set up in practice and audit limited companies.11 It noted that when Parliament was debating the 1947 Act fears were expressed that there were not enough qualified accountants, and that there were delays in getting accounts audited. Concern was also expressed whether thousands of small companies would be able to pay the fees. On the proposal that the recognized accountants be named in the Act, the only reasons given to the BOT were that it would give them added prestige and that the Board would be better protected from political or other pressure for the recognition of new bodies. Although the department saw no strong objection to the proposal it found the proposal difficult to support it on these arguments (BT 58/603).

The BOT consulted the Inland Revenue on the number and competence of unqualified accountants used by exempt private companies. A memorandum by N. Dunn of the Inland Revenue records his view that:

at one end of the scale there is the honest experienced full time practitioner whose competence and performance is unaffected by the absence of a particular set of letters after his name; at the other end, there is the hedgerow accountant, pub-crawler or hanger-on to the theatrical profession, always ready to knock up a set of accounts for a pound or two or even a drink or two. (IR 40/11087)

In transmitting their view to the BOT, Dunn's colourful description of the less competent became, in a letter from Dalton of the IR to Cowan at the BOT, "at the other end there are persons calling themselves accountants and auditors whose competence is small and honesty no larger". The IR thought the number of nonrecognized auditors negligible (T 233/1997).

The CC considered the issues at its meeting on 9 October 1952. Marker had left the Board to become an adviser to Lloyds but continued a member of the CC. Howitt explained how attempts to regulate the profession in the past eight years had failed solely through the difficulty of defining "accountant" and "accountancy" and how it was now felt that the best solution would be to amend the Companies Act on the ground that limited companies should have their accounts audited by responsible persons. It does not seem that the committee required a great deal of persuasion. Tyser thought the matter "generally not very important" as he thought there were few cases of unqualified auditors; Brown thought other Companies Act matters more important, but he was personally in favour though he doubted the political acceptability of the proposals. Marker in particular spoke in support, arguing that compelling audit without requiring that competent accountants should do it was unsatisfactory. Moreover specifying the recognized bodies in the Act would make it easier to promote their recognition overseas. The Committee agreed on the desirability of the proposals, conditional on satisfactory responses to enquiries about the adequacy of numbers and the burden on small companies. It does not appear that the proposals were considered by the AAC (BT 58/573).

Although this support by the CC of a "drastic and far-reaching proposal" appears contrary to the views of the Board, a file contains notes on a draft "Companies (Accounts and Audit) Amending Bill" incorporating the profession's suggestions about audit as well as proposed changes to the accounting requirements of the Act. It included a proposed new sub-paragraph to s 161(1), "And has in the opinion of the governing body of the relative association obtained such knowledge and experience as will, in the opinion of that body, enable him to audit the accounts of a company" and the file includes a note:

we may find some opposition from the Institute of Chartered Accountants on the basis that it implies that the fact that their members have been admitted to membership of the Institute does not give a complete assurance that such members are qualified to audit a company's accounts without some additional certificate.

It does not appear that this draft was taken any further (BT 58/483).

Shackleton and Walker (1998, pp.83-6) have outlined the history of the scheme for the ACCA to absorb the "better elements"12 of the British Association of Accountants and Auditors, the Faculty of Auditors and the Association of International Accountants ("a pushing body")13 in an attempt to reduce the number of individuals applying for recognition. That scheme failed on 24 January 1955 when a resolution failed to obtain a three-quarters majority of the ACCA members. As a result, in August 1955 the British Association and the International Association applied to the BOT either for recognition of the two bodies as then constituted or for the recognition of a proposed new body tentatively called "The Institute of Registered Accountants" with its initial membership drawn from the members of the two associations. At a meeting with the associations in December 1955 it became clear that they attached greater importance to a new body, and it was agreed that the board would discuss the composition of the sort of body that might stand a chance of recognition (BT 299/259).

However, the secretary of the Association of International Accountants also wrote to the Parliamentary Secretary in December 1955:

My Council are gravely apprehensive that the profession will now wish to frustrate the present application pending implementation of the profession's formal request, already made, that the provisions of section 161(1) of the Companies Act should be extended to exempt private companies. The Association's representatives have already been assured on more than one occasion that our application for recognition would be dealt with by the Board's General Consultative Committee and that under no circumstances would the matter be dealt with by the Accountancy Advisory Committee which is composed exclusively of representatives of the existing recognised bodies. (BT 58/922)

A BOT note denies that it was ever said that "under no circumstances" would it be dealt with by the AAC, and that there was any question of the profession looking to frustrate the present application. The decision would be taken by the Board on the advice of the CC; the comments of the AAC would be given to the CC (BT 58/922).

The matter was referred to the AAC on 29 June 1956, with Howitt and Nelson also present. The AAC determined that it would not recommend a new body for recognition unless:

1. it were of a substantial size;

2. its financial position were sound and sufficiently strong for it to pursue an independent policy;

3. a large majority of its membership had been admitted by examination;

4. its standards of admission, by way of examination and practical training, were satisfactory;

5. it had high ethical standards and effective machinery for enforcing them, and

6. its standards generally were not inferior to those of the bodies at present recognized.

The committee was further of the view that these qualities would have to be exhibited in practice over a substantial period of years (BT 299/259).

The AAC's recommendations were reported to the CC for its meeting on 17 July 1956 (at which the chairman noted that "it had been a considerable time since the committee last met"). An even-handed briefing note by the secretary (H. Osborne) pointed out the need to maintain high standards in the audit of company accounts, but also the necessity "in the present climate" of avoiding any appearance of trying to maintain a closed shop in the profession, the fact that the two associations had existed for more than 25 years and that in one form or another their application for recognition had been under consideration for over eight years. The CC, however, endorsed the views of the AAC, deleting the phrase "substantial" from "a substantial period of years" but adding the additional criterion that, after the initial recruitment of membership, admission should be by examination only. The two bodies were to be told that on present indications the chances of a new body being recognized in the next five years were slender, and unless there were some exceptional change in circumstances the period would no doubt be much longer (BT 299/259). Whatever the views of the Board, it was unlikely that it could fly in the face of such clear advice.

Shipping exemption

Although the recognized auditor question occupied much of the committees' time, each was consulted on a number of other issues. The AAC considered policy issues, such as what exceptions could be made to overseas companies under section 410, and also some queries from individual companies (though it regularly stressed that it was not its job to advise on individual cases nor the job of the Board to advise on interpretation of the requirements of the Act)14 (BT 58/574). The CC considered the application of schedule 6 of the 1947 Act to unregistered companies, including chartered companies, and the registration of undesirable names (BT 58/573).15 A major issue before the CC at its second and third meetings concerned the application by the Council of British Shipping for exemption under Part III of the First Schedule of the Companies Act 1947 from having to disclose the inner reserves of shipping companies.

At its meeting on 30 April 1948, the CC discussed a proposal from the Council that when a dividend was paid other than from profit for the year that fact should be disclosed, and that the exemption from the requirement to disclose inner reserves should apply to all companies primarily engaged in overseas trade. During the passage of the Companies Bill Parliament had agreed the exemption in principle, but not its precise application, where the national interest was involved. Although J.R.Willis, Under-Secretary at the Ministry of Transport, confirmed that exemption was in the national interest, the committee showed division over the basic issue. Howitt and Kettle regretted that Parliament had given a virtual undertaking to grant the exemption. Goodhart, on the other hand, said that "as an American" he felt embarrassed by the discussion; in America shipping was regarded not as a business proposition but as a political one, and he regarded it as not only justified but necessary to conceal shipping profits. Although the CC agreed the proposals in principle, it was left to the accountant members of the committee to work them out in detail (BT 58/573).

A meeting took place between two representatives of the Shipping Council, Howitt, Nelson and Marker, with Robson from the A AC. There was a clear division between the accountants and the others on the extent of disclosure required, Howitt in particular arguing that where the dividend was paid other than out of profits for the year the amount should be disclosed. To the regret of the shipping representatives and Marker, the meeting agreed to a proposal from Robson that where dividends exceeded the profit for the year that would have been shown but for the exemption the fact should be disclosed and also the amount of the excess unless, on application by a company in any year, the BOT exempted it (BT 58/574). The tendency of the Board to ignore, or seek to change, advice it did not like resulted in it placing a different proposal before a meeting of the CC on 14 June 1948. This would reverse the procedure; companies would not have to disclose the amount of the excess unless the Board directed. The CC agreed to this on the grounds that it was otherwise likely that the Board would have to consider requests from every shipping company (BT 58/573). Details of the shipping company exemption were reported, without comment, in Accountancy (September 1948, p.199).

True and fair view

The committees held a number of joint meetings. The first, on 10 June 1949, raised some important issues relating to the new concept of "true and fair".

Lisbon Electric Tramways Ltd, operating in Portugal, sought modification under section 149(4) of the requirements of the 8th Schedule so as not to disclose separately certain reserves and reserve movements and not to disclose payments of UK tax. The grounds were that the Portuguese government might press for a reduction in tariffs if it were apparent that large sums were put to reserve, and the knowledge that large sums were paid to the UK government as taxation made it likely that the Portuguese government would take the concession away. Fearful of a takeover by the Portuguese government, the company wanted to show the highest possible value for its assets, but had also deducted a reserve of £100,000 from its investments, which it did not wish the Portuguese to know about. The Board was minded to grant the request on the grounds that to force compliance with the 8th Schedule "would be prejudicial to shareholders and contrary to the government's policy of maintaining and increasing in every way our exports visible and invisible". However, the auditors (Kettle's firm) had said that if granted the accounts would not give a true and fair view. If the auditors were right, the Board doubted whether it could grant the request since that would be tantamount to modifying the true and fair view requirement.16 The Board no doubt saw the committee as a potential ally in what a briefing note described as an "unusual difficulty" (BT 58/573), though at the meeting Kettle made clear that his firm would not certify the accounts as true and fair if the modification were granted (BT 58/574).

In the context of what constitutes a "true and fair view" some of the modifications previously allowed by the Board, which the auditors had presumably accepted, are of interest. In the case of Telephone Properties Ltd (auditor, Price Waterhouse), operating in Venezuela, modification was allowed because disclosure of the amount of UK tax paid would add weight to arguments for a government takeover. Similarly it was held not to be in the national interest to disclose UK tax in the accounts of Anglo-Portuguese Telephone Co Ltd (auditor, Futcher Head Smith & Co) for fear of pressure to nationalize the company; it was also exempted from the requirement to disclose depreciation because this was considered by the Portuguese authorities to be excess profits. San Francisco Mines of Mexico Ltd (auditor, Annan Dexter & Co) had been allowed to conceal the fact that UK taxation exceeded Mexican taxation to assist in its protests against heavy Mexican tax imposition and to avoid the possibility of further increases in local taxation (BT 58/573).

The objection raised by Kettle had previously been recognized as a possible one by the BOT in the case of Anglo-Portuguese Telephone Co Ltd. A note by L.R. Hinson in April 1948 records that the Board would need "to consider whether omission of the charge for depreciation will conflict with the requirement to show a true and fair view of the profit or loss" (BT 58/458). However, there is no evidence that further consideration was given to this question or that advice was sought from the auditors. On the contrary, the Board's solicitor, Rainsford-Hannay, reported that this was "precisely the sort of case in which the Board should exercise its power of modification" and a note by TA. Butler in February 1949 recorded "I do not think the auditors can complain if it is given". The only correspondence with the auditors that is on file is a letter from Futcher Head Smith in April 1951 asking for confirmation that the modification granted in 1948 had not been withdrawn.

In the case of Lisbon Electric Tramways the committees were split. Kettle got little support from his accounting colleagues, though Tyser from Lazards argued that the accounts should be strictly in accordance with the Act even if the results were prejudicial and Braithwaite said the Stock Exchange would regret the modification being allowed. In the end a majority of both committees agreed that the request should be met. Burleigh and Cassleton-Elliott both argued against Kettle, that the details of the modification allowed need not be set out in the audit certificate (BT 58/574).17

There appears to have been no discussion at the meeting of what constitutes a true and fair view, and it is clear that what carried weight with Brown, Read, Goodhart and Heyworth (who though not at the meeting had given his views in advance) was the impact of disclosure on shareholders and the national interest. Given that the auditors of the other companies to which modification had been granted appear to have acquiesced in the matters concerned, it may simply be that the accounting profession was still very unsure about just what constituted a true and fair view or, more to the point, what detracted from such a view. It may on the other hand be that, given the exemption granted to shipping companies on the grounds of the national interest, it was difficult to distinguish that exemption from the modification sought under section 149(4) of the 8th Schedule, also on the grounds of national interest.

That the BOT could not rely on the committees to extricate them from all problems of company law is illustrated by the other major topic considered at the first joint meeting. This related to the rights of preference shareholders in companies being reconstructed or going into liquidation following nationalization to receive a fair price for their holdings. section 25 of the Coal Nationalisation Act 1946 had included a provision to ensure that debentures and preference shares quoted above par were not penalized by being repaid at par on liquidation. However, two House of Lords decisions had rendered the provision uncertain. In Scottish Insurance Corporation Ltd and others v Wilsons and Clyde Coal Co Ltd, the House of Lords held that repayment of preference shareholders at par was in accordance with the Articles and Memorandum of Association and was just and equitable. The judges regarded section 25 of the Coal Act as in effect meaningless.18 An editorial in Accountancy noted that "a forced winding up, made necessary because the business has been taken away, was never contemplated by those who made or accepted the various terms of issue of shares and experience of such a happening is virtually non-existent" (Accountancy, June 1949, p.134). The problem could arise in all nationalization cases and the BOT sought the advice of the committees as to whether a measure could be devised so that, in these circumstances, notwithstanding anything in the memorandum or articles, debenture holders and preference share holders were fairly compensated. The committees agreed that it was up to the government to put things right, not a matter for action under the Companies Act and declined to advise (BT 58/573; BT 58/574).

Valuation of films

Following a parliamentary question, towards the end of 1949 the President of the BOT remitted to the CC the question:

What steps are necessary, in view of the difference in practice in the valuation of films for balance sheet purposes, to ensure a greater degree of uniformity in this matter by the inclusion of fuller information in the accounts furnished under the Companies Act? (BT 58/576)

In a rare reference in the press to the work of the committees, Accountancy (December 1949, p.316) welcomed the move because of the "considerable ambiguity and diversity in the methods of valuing films in balance sheets", noting that "the simple example of Odeon Theatres certainly seems justification enough for the reference."19 The Accountants Journal (February 1950, p.39) was more sympathetic to accountants; "It is, indeed, no easy matter to convert art, however commercialised it may be, into firm and sufficiently accurate balance sheet values".

In July 1950, the CC considered a report from a sub-committee chaired by Robson from the AAC. The report concluded that the difference in the methods used by the principal British film companies was no greater than might be expected in the circumstances of the industry. The methods were consistent with generally accepted principles for the valuation of stock and more conservative than the method the Inland Revenue thought appropriate for film producers. The report did not favour a uniform method. Disclosure of methods of valuation appeared as a whole better than that of most commercial and industrial companies and the report concluded:

We see no reason for singling out film companies for special legislative treatment in regard to standards of disclosure. But investors would be assisted by full disclosure of accounting bases used and those companies not as full or informative as others might be encouraged informally to give additional information. (BT 58/576)

The CC accepted the report, emphasizing that any action the BOT wished to take should be outside the Companies Act. Heyworth was particularly supportive of the industry, arguing that it was "quite impossible to make artists give proper accounts by legislation" (BT 299/259).

In a memorandum Marker expressed his view that "the report tends to be a whitewashing document, though it does contain one or two valuable suggestions". He showed vexation with the committee's approach.

The Companies Act Consultative Committee does tend to take a rather legal view of the matters put to them. It was intended by the Cohen Committee to deal with broad questions of amending the Act or matters of administration arising directly under the Act where new orders or regulations might be required. The inference to be drawn is that for a special enquiry like this a specially appointed committee is necessary. (BT 58/576)

The Board was unhappy with the committee's conclusions but found it more difficult to take positive action in the face of such conclusions than to refrain from taking action in cases where the committee made positive recommendations with which it disagreed.

Football pools as exempt private companies

Towards the end of 1950 the Evening Standard ran a campaign for the publication of accounts by football pool companies. The newspaper complained that such companies were able to adopt the attitude that "customers were not entitled to look into the till, any more than into the old lady's who sells a penny-worth of bulls eyes in the shop round the corner" (Evening Standard 17/X1/50 on BT 58/577). Raymond Blackburn, Independent MP for Northfield, introduced a bill for the compulsory publication of the accounts which Accountancy reported but did not comment on (Accountancy, January 1951, p.10). Prior to the Blackburn bill, Harold Wilson, concerned by the press criticism, had asked for the matter to be referred to the CC. Marker had ascertained that the turnover of the industry was between £50m and £60m per annum, it employed approximately 23,000 people, and nine firms represented about 95 per cent of the business, the remaining 5 per cent being carried out by some 130 smaller firms. Of the nine, Littlewood's accounted for half of the turnover and half of the employees, Vernon's one quarter and Sharman's one eighth. Marker shared the view of many others that it was ridiculous that the nine larger firms should be exempt private companies (BT 58/577; BT 58/1704).

Another joint meeting of the committees took place on 21 December 1950. Goodhart alone appeared prepared to do what Marker saw as the committee's purpose - deal with broad questions of amending the Act. He reported that although the Cohen Committee had realized that some businesses that were not small would fall to be exempt private companies, the status of concerns such as football pools had never been raised with the committee. "Had it been, the exempt private company doctrine, the decision on which had been a very close thing, might not have survived". In his view "the present meeting should assert positively that the Cohen Committee had not contemplated that football pools should come under the umbrella of exempt private companies" and that "as the natural heirs and successors to the Cohen Committee the Consultative Committee should express its views on what was a matter of public interest" (BT 58/573).

Others took a more legalistic view of their remit. Although most agreed that there was an anomaly [Tyser, in a letter, however asserting that "I see no particular reason why a company carrying on a football pool business ... should be called upon to publish its accounts merely because its business is large and profitable" (BT 58/577)] they agreed that the Companies Act was not the vehicle for achieving the end desired. Issues of public policy beyond the question of exempt private company status were involved. Useful information would require more than the annual accounts produced under the Companies Act and the aim of the special provisions in the Companies Act was to reduce, not increase, the amount of information required by particular classes of company. Pools could also be carried out by firms as well as by companies. The CC recommended, therefore, that although publication of accounts was "probably desirable" the matter should be dealt with by specific statutory provision. Their views were conveyed to the Royal Commission on Betting, Lotteries and Gaming whose secretary had been in attendance at the meeting (BT 58/573).20

Non-voting equity shares

Early in 1956 the Chartered Institute of secretaries had asked the London Stock Exchange to require shares with restricted or no voting rights to be designated "nonvoting" or "voting restricted" prior to the granting of a quotation. The Quotations Committee replied in the negative, though it instructed the Share and Loan department to "recommend" the inclusion of "non-voting" in the title of shares with no voting rights. The Quotations Department refused to place a note against non-voting securities in the Official List because of "the risk of further confusing the public" (Whitworth, 1956, p.510). At its meeting on 10 September 1956 the CC considered a request from the President of the BOT for advice on whether there was need for an enquiry into non-voting shares. Although most members of the committee felt that such shares were wrong, they all felt that the danger was not serious, that contractual rights should not be interfered with and on present evidence there was no need for an enquiry (BT 58/686; BT 299/259).

BOT action after this meeting reflects a continuing vexation with the tendency of the committee to take a legalistic view of matters referred to it. J. Cowan wrote to Stacy in November 1956:

It would [be] impertinent for me to express any disagreement with the views of this important committee ... [but] ... apart from the technical company law consideration there are political and economic aspects and I am not sure that the committee have sufficiently considered these. (BT 58/688)

Stacy in turn wrote to G.H. Andrew, Second Secretary, "I suppose that we are not obliged to abide by the views of the committee ... I have a feeling that the consultative committee have shown an attitude which is too laissez faire" (BT 58/688). Andrew wrote to the Permanent Secretary that it would be difficult to act without the backing of the committee, with which the Secretary reluctantly agreed since "I do not find the arguments against an enquiry really convincing". The Chartered Institute of Secretaries communicated its concern at Read (a member of CIS Council) speaking and voting against an enquiry at the CC meeting and Cowan wrote to Stacy about this commenting that although the Board was surprised at Read's attitude, "it would have been a delicate matter for us to take up their point seeing that he and the other members are on the consultative committee in an individual and not in a representative capacity" (BT 58/688).

In his article in The Accountant Whitworth had further complained about calling non-voting shares "ordinary shares": "It is all the more remarkable that shares so misleadingly named can be freely sold on the stock exchange" (Whitworth, 1956, p.510). Accountancy, too, commented that "the issue of non-voting shares is a thoroughly undemocratic procedure and accentuates the divorce between effective control and the provision of capital which has long been recognised as dangerous" and it accused the Stock Exchange of complacency (Accountancy, December 1956, p.499). Such views may be thought indicative of much professional opinion, because by 30 November the Parliamentary Secretary had decided that a committee of enquiry should be held, despite the views of the CC. He wrote to the President:

Nor do I think we should be bound by the outcome of the consultative committee consideration ... I understand that their decision reflected a tendency in the committee among those who were inclined to be opposed to non-voting shares to acquiesce tamely in what seemed to be the general consensus of view.

He concluded "I see no point in waiting" (BT 58/688). The President agreed and on 10 December 1956 wrote to the Lord Privy Seal and other ministers announcing his intention.

On 21 December 1956 the Chancellor of the Exchequer, Harold Macmillan, replied. He argued that since the CC had said that an enquiry would be premature, it would be an affront to "the City top brass on the committee (such as Sir John Braithwaite, Sir Sam Brown, Sir Harold Howitt and Lord Heyworth)" if one were now appointed. He argued too that it would be difficult to get a satisfactory membership for an ad hoc committee when individual members of the CC, who were recognized leaders of the Stock Exchange, law, accountancy and business, had so recently gone on record as doubting the need for such a committee (BT 58/684; BT 58/688).

During 1957 the practice of issuing such shares grew and there was "widespread and influential criticism of such shares" but in August 1957 the Stock Exchange said that the proper remedy lay in an amendment to the Companies Act, not in applying a sanction that "would have the effect of taking away from companies powers which they legally possess" (The Accountant, 31 August 1957, p.250). The President of the BOT received a memorandum from the Prime Minister (now Harold Macmillan) in September 1957 asking whether non-voting shares should be made illegal. The President replied that the CC was to consider the issue again at its meeting on 24 October 1957, to which Macmillan responded "Yes. I would not mind legislation" (BT 58/688).

At that meeting Braithwaite suggested that the nominal value of such shares amounted to only about two and a half per cent of the total for which there was a stock exchange quotation, and the agitation against them was due to the press or was political, with no public interest. Although Read and Beard thought they played a useful role in family businesses, the majority of the committee thought such shares wrong in principle, Marker arguing that they were fundamentally opposed to the principles of the Cohen Committee as embodied in the Companies Act. There seemed to be a belief, however, that the matter was not sufficiently acute to warrant complicated legislation, possibly full of loopholes, and that if the institutional investors turned against them the matter would resolve itself in time. As a result the BOT reported in December 1957 that the present position did not call for amending legislation. The Prime Minister, being told of the decision, replied, "I accept this decision but rather reluctantly. But keep it in mind. It would, I think, be popular" (BT 58/687; BT 58/688).

In 1958 the Carreras case, in which a bid had been made for the voting ordinary shares but not for the non-voting ordinary shares, attracted attention, "bringing home forcibly to investors the fact that some equities are more equal than others" (Accountancy, September 1959, p.457). The Secretary of the CC wrote to all of the members of the committee to ask whether this caused them to take a different view. On the whole views were unchanged, both as to the desirability of piecemeal legislation and on the question of a special committee of enquiry. The committee decided that on present evidence government intervention should be eschewed but that the subject be added to the list of topics to be considered by any new company law amendment committee (BT 58/686).

As with most of the other topics considered, the committee roles in this issue would not have been generally known outside Whitehall and, therefore, appear to have attracted no comment in the professional press. That press, however, continued to be critical, an editorial in Accountancy (September 1959, p.457) pointing out that "the onus is clearly on those who preserve non-voting equities to prove to investors the need to do so".

The CC's concern with "technical company law matters" proved useful to the BOT in October 1958 when it wrote to members proposing a general permission under the Prevention of Fraud (Investment) Act authorizing directors and shareholders to put out circulars relating to takeover bids. The comments of members showed that the proposal would be difficult to operate and raised problems bristling with legal complications. The Board withdrew the proposal (BT 58/652).

Partnership numbers

Both the CC and the AAC were charged with initiating matters for discussion. It has been said that the power to initiate matters, and not merely react to those placed before it, is a sign of a committee's strength. It has also been noted, however, that too much initiation may harm a committee, since civil servants and ministers will not be keen to have advice on matters they do not wish to hear about (PEP, 1960, pp.97-8). Although there is little evidence of such initiative, Sir Sam Brown from the CC did raise with the BOT the longstanding restriction on the number of partners in a partnership, and the matter was discussed at the meeting of the CC on 24 October 1957. Brown pointed out that limiting the number to 20 caused problems for larger firms of solicitors that were unable to hold out the prospect of partnership. Brown was not the first person to raise the matter with the Board. Kettle had raised the matter, in his capacity as a Deloitte's partner, in October 1954, and John Pears of Cooper Brothers, during a lunch with Sir Frank Lees from the BOT in August 1957, had referred to the possibility of a merger with an American firm to become Coopers and Lybrand but said that it might be difficult securing a proper balance in the number of partners if they were limited to 20 (BT 58/645).

The CC was not unanimous in advocating action. Braithwaite pointed out that stock exchange firms were governed by Stock Exchange rules independently of the law, and the Council might wish to maintain the restriction so as to maintain competition. Goodhart thought it a matter for the law commission to investigate. Howitt felt the rules hampered certain businesses and since partners were jointly and severally liable the greater the number of partners the greater the security. From the Board's point of view there was little to be said for the rule. The official records of debate on the 1862 Companies Act gave no indication of the reasons for it, and the danger of fraud was thought more likely with small firms than large ones. The Board had it on its list of necessary amendments in any new Companies Act but saw little prospect of parliamentary time in the near future (BT 58/645).

Subsequent to the meeting of the CC the Board consulted further. The AAC was not consulted as a body, but in May 1958 Robson was asked for his views on behalf of the committee. He was very much in favour, but added:

You will be aware that there are other matters on which amendments have been suggested and I take it that you would hardly wish to undertake amendments to deal with this point alone bearing in mind that it is of importance to a relatively small number of interests. (BT 58/645)

Nonetheless the Board did press ahead with an attempt to introduce a private member's bill in the 1958/59 session. However, delays by the Treasury resulted in the Board missing the deadline and in view of difficulties raised by the Government Solicitor, Sir Richard Speed, it was finally decided in August 1959 to leave the matter for consideration with other Companies Act amendments. It is notable that when the BOT gave evidence to the Jenkins Committee it was not in favour of a total lifting of the prohibition (BT 58/707).

Bill for the protection of depositors

In April 1960, the Treasury was drafting a bill relating to companies which solicit money on deposit from the public and wished the accounts of such companies to give as much information as possible about the use to which depositors' money had been put, to enable depositors to assess the risks attached. The AAC was asked how far it was necessary and practicable to supplement the normal requirements of the Companies Act and in particular the practicability of requiring audited accounts at six monthly intervals. Although there was detailed discussion of accounting matters, the first meeting of the AAC to consider the issue, on 13 May 1960, appears to have been far from helpful. The committee determined that audited six monthly accounts were impractical - they should be unaudited. It also proposed that the views of the banks be sought about the detailed information required, as the banks have practical experience of the information necessary to decide how much credit to give (BT 58/902). This may be thought to show a group of eminent accountants attempting to pass the buck.

A BOT note on the meeting suggests that some of the views expressed were based more on consideration of policy than professional or technical advice and that it should be borne in mind that this was an Advisory Committee. It also commented on the proposed reference to the banks:

The point at issue is not what information should be acquired, confidentially, for an ad hoc decision on individual cases but what reasonable requirements can be laid upon the number of companies engaged on a common type of business for disclosure to the general public in order that the latter may make a reasonable assessment of the risks involved in lending money. (BT 58/902)

The BOT appears in this case to have been more aware than the accountants of the need for different information for different purposes. Nonetheless in two subsequent meetings the committee made a number of detailed recommendations as to the accounting required, and a note on the meeting of 16 November 1961 records that the committee was "very helpful and very thorough" (BT 58/902).

Reconstituting the committees

The Jenkins Committee on Company Law was appointed in 1959 and reported in 1962. In its report, no reference was made to the work of the AAC, only to its existence. The Report did, however, suggest that "with wider terms of reference and meeting at regular intervals" the CC might provide the machinery of coordination and cooperation between the Board and other bodies concerned with the protection of investors which Jenkins wished to see established, and proposed that it advise the Board on changes in the administration of the law and on amendments to the Acts if they thought such action was urgently required [Jenkins Report, 1962, paras.229, 234(a)l]

No action was taken on this recommendation until 1972 when the CC was formally disbanded, not having met since 1957. A memorandum notes that the committee:

has not proved satisfactory as an advisory body. Its members were too senior to be convened easily and because they were appointed as representatives they each tended to adopt the party line of their organisation rather than give an independent view. (BT 298/664)

This contradicts the assurances given to the ACCA and the FBI in 1948 as well as the terms of the letters of appointment, and may have been a bureaucratic fudge to justify a new committee. In place of the CC a Companies Consultative Group was established to advise on proposals for reform. It first met in 1972 to advise on the registry of business names and its membership included Martin Harris of Price Waterhouse (BT 298/710).

After the passage of the 1967 Companies Act consideration was given to reconstituting the AAC. The process was one of deja vu. Consultation again took place with the accountancy bodies but this was a face-saving matter - a clear example of a committee being set up to keep people happy (Wheare, 1955, p.62). Jardine summarized the position in a note to D.R. Serpell, Second Permanent Secretary, in December 1967:

As I see it the Board of Trade needs advice from two distinguished accountants. At present we get excellent advice from Sir T Robson and Sir W Lawson. We need to replace them by equally distinguished accountants. We do not really need more than this ... The rest of the committee has a mainly presentational role. The main need is to fill the places without offending any individuals or any of the accounting bodies. (BT 299/227)

In particular Jardine was concerned not to offend the ACCA:

The president of the Association is Mr Landau. He has made it clear to me that he would like to be invited ... His views on complicated accounting matters are of little value as compared with [some of the more eminent accountants]... My main reason for preferring that Mr Landau should be invited is a desire not to hurt his feelings or those of his Association by, in effect, indicating that we think their members in public practice not good enough for the committee. (BT 299/227)

Serpell's response to Jardine revealed an apparent gap in departmental records. "Your minute does not refer to the existence of the Board of Trade accountancy adviser Sir Richard Yeabsley. As far as I know we never seek Sir R Yeabsley's advice ..." (BT 299/227). Yeabsley had been senior partner in Hill Vellacott until his retirement in 1963 and his Who's Who entry showed him as BOT accountancy adviser since 1942. His name was not mentioned in connection with the establishment of the committees in 1947,21 and Jardine was unable to trace any papers in the Insurance and Companies division about his appointment. Sir Richard Powell, Permanent Secretary, explained that Yeabsley used to handle accountancy problems relating to price control until that was abolished and that his services had not been used since. The opportunity was taken in 1968 to terminate his services (BT 299/227).

In reconstituting the committee the main problem was whom to appoint as chairman. Possible names included Walter Parker, Sir Henry Benson, Mr A.H. Walton and Ronald Leach. Jardine doubted that Parker would be a good choice, not least because "when the report of the inspectors in the Rolls Razor case is eventually published the reputation of Price Waterhouse & Co will be somewhat tarnished" (BT 299/227). Walton was not important enough. Parfitt noted that Benson was of very high standing but doubled "whether his strong personally is entirely suited to the position of chairman when he would be expected to have regard to, and to bring together, the views of others" (BT 299/227). In Parfitt's view "Mr Leach ... has always seemed entirely sound, courteous and in every way the sort of man who would make a good chairman" (BT 299/227). As a result Leach (Peat Marwick Mitchell, later President of ICAEW 1969 and first chair of the Accounting Standards Steering Committee) was appointed chairman, with D.S. Morpeth (Touche Ross Bailey Smart), S.R. Harding (Thomas Tilling Group), J.L. Kirkpatrick (Thomson McClinlock) and J.P. Landau (Landau, Morley and Scott) as members. The press notice of 18 January 1968 staled that members had been appointed in a personal capacity and not as representatives of any particular interest or organization.

The letter of acceptance of appointment from Kirkpatrick asked about the proposals for the committee's work and the liming of its meetings. Jardine suggested telephoning him to "indicate that there will not be much for him to do for the present and suggest a talk when he next has occasion to visit London" (BT 299/227). Although it was noted in 1972 that the AAC "is still theoretically in existence", it appears to have met just once under Leach, on 21 May 1968, but there is no record of that meeting or of the AAC's disbanding.

Conclusions

When the committees were established potential members perceived them as of considerable importance. In an address to the Incorporated Accountants in London in February 1952, Marker referred to the AAC as having "greatly contributed to the smooth working of the new Act" and lavished praise on Bertram Nelson who had been "a lower of strength" (Marker, 1952, p.133).22 An article in the Board of Trade Journal (22 January 1960, p. 150) noted that "the advice of the two committees has been sought on many occasions". That Marker continued a member of the CC after his retirement from the Board in 1952 suggests that he thought it a powerful instrument. Even in 1954 Stacey was able to write:

The credit for evolving from an embryonic suggestion in the Cohen report an imaginative scheme to constantly review the operation of the Companies Act in relation to new problems which may arise goes to the Board of Trade ... Thus, a permanent liaison has been securely established between the executive, responsible for the enforcement of the laws, the professions who carry out its provisions and the business community who are subject to its provisions. (Stacey, 1954, p. 235)

In 1954, Robson was knighted in the Birthday Honours for his work on the AAC (The Accountant, 19 June 1954, p. 690) and Nelson was awarded the CBE for his work on the CC in the New Year Honours 1956 (The Accountant, 7 January 1956, p.19).

Yet Garrett's history of the Incorporated Society devotes only seven lines to the committees (Garrett, 1961, p.261). In his history of the English Institute Howitt, despite his inside knowledge, devotes only eight lines to them and their membership, with no discussion of their role (Howitt, 1966, p. 117), while Jones' history of Price Waterhouse (Jones, 1995) makes no reference at all to the committees or to Robson's work in connection with them. To some extent, this may derive from the secrecy with which they worked; in discussing the valuation of films, for example, "the non-official members rather deprecated any publicity relating to any of the committee's proceedings" though it was recognized that in that particular case, since the reference followed from a parliamentary question, there might be a case for publishing the report (BT 299/259). Or was it that in retrospect, the committees did not have the significance expected once their immediate tasks had been carried out?

Among the roles identified for the committees in Harold Wilson's address to them in 1948 were advising on the steps to be taken to meet transitional difficulties under the Act, on the Board's power of investigation and on modifications to the accounting provisions of the Act. There is little, if any, evidence that the committees fulfilled these roles. No minutes or memoranda appear to record any request for advice on the Board's investigatory powers (though it had been agreed at the first meeting that should an urgent investigation arise Marker should consult members of the committee informally). As for transitional provisions, a BOT memorandum prepared for the committees in January 1948 noted that it had been a year since the passing of the new Act and more than six months' notice of enforcement had been given; it was difficult to see how any relaxation could be given without in effect postponing enforcement of the provisions further (BT 58/574). The AAC appears to have agreed to this, which negated one of the main purposes for which it was established.

In relation to the accounting provisions of the Act, one might have expected the AAC to be more influential and proactive. Apart from the report on the valuation of films, and advice on the Bill for Protection of Investors, it appears to have played a minor role. Certainly proposals for amendment of the provisions were made by the ICAEW between 1949 and 1952, a BOT note on the 1949 proposals commenting "... the Institute have given us very little ... Most of the suggestions are neither urgent nor important, some are arguable and one or two misconceived" (BT 58/483). Although correspondence with Robson suggested that these proposals would be brought before the AAC towards the end of October 1952 (until which time, Cowan said in his letter to Robson, "I am keeping this ... matter rather in the background" (BT 58/603)), no agenda or minutes could be found suggesting that the committee discussed them. The apparent failure of the BOT to put these before the AAC appears consistent with Bircher's findings that, post-1929, "the BOT did not want to undertake reform unless it was perceived to be essential" (Bircher, 1991, p.291) but that is unlikely to explain the failure of the accountants on the committee to raise the issues. The AAC was consulted about the accounting provisions of the Companies Bill in 1965 (BT 299/135), though it appears almost as an afterthought as a memorandum by EA. Bayly includes, "It is to be hoped that the comments made by the committee will not lead to many substantial changes in the instructions already sent to Counsel" (BT 299/120). In the event, the Board altered its views on certain points as a result of the AAC's comments; on others it did not, but "this does not mean that the suggestions have not been gratefully received and thoroughly considered" (BT 299/135).23 A later note by Jardine records that "as we have accountants in the board of trade we depend on the committee less than would otherwise be the case for advice on such matters" (BT 299/227). In a professional capacity, Robson was clearly more proactive than the AAC as a body and in June 1959 the BOT accepted his offer of his firm's assistance in prescribing more useful accounts for unit trusts (BT 222/68).24

On issues such as the auditor qualification and advice on the shipping exemption, the committees fulfilled a very important role and the BOT relied heavily on their advice.25 In other matters, as we have seen, the committees sometimes showed an independence of thought that was not readily accepted by the Board. In considering issues such as standardization of accounting practice in the valuation of films, the status of football pools as exempt private companies and non-voting shares the committees resolved to maintain the status quo; in doing so, they ran the inevitable risk of being considered ineffectual. After 1952 meetings of the committees appear to have become less frequent. There might be a number of reasons for this change. One would be that the most important part of their work - seeing in the 1948 Act - had been largely completed by then. Another would be that the Board felt they could not rely on the committees to come to the "right" conclusions on important matters; it is surely no coincidence in the light of Marker's comment on the film report "for a special enquiry like this a specially appointed committee is necessary" that when it came to considering shares of no par value in 1952 a special committee was established rather than the matter being referred to the CC.26 A third possibility for the less frequent use made of the committees after 1952 is that they were to a large extent Marker's creations and following his retirement his successors did not share his interest in their work.27 A fourth possible reason is that greater use was made of individual members of the committees on specific topics. A memorandum by Jardine, Under-Secretary at BOT, in October 1966 records that the board would commonly consult the chairman from time to time on the adequacy of overseas qualifications and that in an emergency he would consult Robson or Latham without convening the full committee (BT 299/227).28

Many of the issues considered by one or other of the committees were considered also by the Jenkins Company Law Committee and, in most cases, Jenkins came to similar conclusions. On the valuation of stocks, Jenkins agreed with an ICAEW recommendation (and hence with the CC's decision on films) that it was undesirable to attempt to lay down by statute rules for valuing them (Jenkins Report, 1962, para.370). On non-voting equity shares, despite the earlier forecast of the Accountancy (September 1959, p.457) editorial that "the non-voting share will gradually disappear from the scene, unmourned as it was unloved", Jenkins found that the case for their abolition had not been made (Jenkins Report, 1962, para. 136). Jenkins saw no reason to alter company law relating to preference shares, not least because, following the two House of Lords decisions referred to the CC, most preference share issues had provided for their redemption price to be linked to the average market price in the previous six months, and the committee did not wish to alter existing contractual rights (Jenkins Report, 1962, para.195). Jenkins reflected the sentiments expressed by Howitt and Kettle in discussion of the shipping exemption in finding that the shipping companies' case had not been made out and proposed abolition of the exemption (Jenkins Report, 1962, para.415). It proposed the abolition of the restriction on the number of partners for certain professional firms (Jenkins Report, 1962, para.78[g]). Although it did not specifically consider the case of football pools, it had doubts whether the Cohen committee or Parliament had intended the definition of an exempt private company to work out as it had, with some 70 per cent of private companies at 31 December 1961 claiming that status, and it proposed that the distinction between exempt and non-exempt companies be ended (Jenkins Report, 1962, paras.57,63[a]). However, in relation to the recognition of auditors, Jenkins clearly failed to support the CC's recommendations about the amendment of s 161. The minutes of evidence show little consideration was given to naming the recognized bodies in the Act and only the ICAEW and ICAS were asked about this (Jenkins Evidence, 1961, qqs 6155/6, 6416). Nonetheless, the fact that many of the Jenkins findings lent support to recommendations of the committees suggests that criticism levelled against the AAC and CC by the BOT was not justified and given that the committees were in existence for almost a quarter of a century it may be that their potential was never fully realized.