Holding Irish auditors to account

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Pat Costello, CEO of the Institute of Chartered Accountants in Ireland had a letter in the Irish Times last week. To put his argument in a nutshell he said "don't blame the auditors - they just followed the rules".

I thought that was absurd. My replay was published today:

Madam, - I note the opinion that Pat Costello of the Institute of Chartered Accountants in Ireland offered in your letters page (January 23rd) but have to disagree with the impression he gives that accountants are not responsible for the financial problems we are now facing.

Mr Costello's argument is true but disingenuous. Accounts are prepared in accordance with the law, they are audited in accordance with recognised auditing standards and directors are responsible for preparing accounting information. What he fails to note is that International Financial Reporting Standards now define what should be included in accounts and these standards are in effect incorporated into Irish law.

Those standards are set by the International Accounting Standards Board, a private company based in London largely funded by the Big Four firms of accountants and the financial services industry. This body is beyond, and argues it should be beyond, political and democratic accountability. The accountancy profession did, therefore, create and impose the "mark to market" fair value basis of accounting that is now acknowledged to have so badly failed us. No one else can be blamed for that fact.

The same professional firms also dominate the International Auditing and Assurance Standards Board which sets auditing standards world wide. It was this body that required that auditors report within the "specified accounting framework" to which Mr Costello refers - which is, of course, that created by the International Accounting Standards Board. In so doing they fundamentally reframed auditing. Before this change happened, auditors were required to determine whether accounts showed a true and fair view. After it, they just had to confirm they complied with a particular set of rules - which they need not question.

This explains why they completely failed to look behind the charade or mirage the banks created to see if there was any real worth in the assets they put on their balance sheets. Collectively the accounting profession ensured that this was not required.

And of course directors then prepared accounts that complied with the rules but which did not deliver real value. Respectfully, I think this was exactly what the accounting professions set out to assist their clients (to whom they also act as very well paid consultants) to do.

In the circumstances the suggestion Mr Costello puts forward that the problems faced by companies have nothing to do with the accounting professions is completely misleading. The accountants set the rules for accounting and auditing. No one else did. The accounts produced using those rules gave no idea that there was anything wrong within so many companies that have now failed, and nor did their auditors. In that case, accountants must take a fair share of the blame. It is time they stood up as a profession and accepted the accusation levelled against them. It is the only ethical thing they can now do. - Yours etc,


Downham Market,