Auditors

The below paper was written in 1998 - 10 years ago. The warning signs were there but the UK government ignored them. Negligence?

Taken from Auditors: Holding the country to ransom
Association for Accountancy & Business Affairs

Click HERE to read full version

The UK auditing industry enjoys a statutory monopoly of the external audit function. More than 600,000 companies and numerous other organisations are required by law to submit to an audit by an accountant belonging to one of the UK’s accountancy trade associations. This has enabled accountancy firms to earn millions of pounds in fees.

Despite enjoying a statutory monopoly, auditors do not owe a ‘duty of care’ to any individual shareholder, creditor, employee, bank depositor, pension scheme member or any other stakeholder. Anyone buying mundane things, such as a packet of sweets or potato crisps, acquires statutory rights, suppliers are required to owe a ‘duty of care’ to current and potential consumers. But none of this applies to auditing. Seemingly, the consumer rights revolution has completely passed auditing by.

Failures of the auditing industry continue to make regular headlines.

Episodes such as BCCI, Maxwell, Polly Peck, Queens Moat Houses, Wickes, Atlantic Computers, Barings and others have resulted in loss of jobs, bank deposits, pensions, savings and investments for many. The only long-term defence against negligence lawsuits is to improve the ‘quality’ of audits. But the auditing industry has shown little inclination to reflect upon its internal practices. Audits continue to be used as loss-leaders to secure consultancy work. Research shows that much of the audit fieldwork is also falsified.

Rather than going all out to improve ‘quality’, the auditing industry and accountancy trade associations are campaigning to secure further liability concessions. It claims to be an unfair victim of lawsuits though it has failed to provide any systematic evidence of actual legal settlements.

Based upon the figures provided by the industry, we estimate that the auditor’s liability costs are around 2.67% of the total revenue, considerably less than the annual PR expenses of the major firms. Most of the major lawsuits are by one accountancy firm (in its capacity as a
receiver, administrator or liquidator) against another (in its capacity as an auditor), the main beneficiaries being the accountancy firms themselves.