FT.com / Companies / Industrial Goods - Consultation opens possibility of more curbs on auditors.
Accountants in the UK could face further curbs on non-auditing services they provide to audit clients following a consultation exercise that will reopen the controversy at the heart of the Enron accounting scandal.
The Auditing Practices Board is weighing up whether to pursue further restrictions and will on Tuesday publish a consultation on the topic after questions were raised by MPs as part of their investigation into the causes of the credit crisis.
As this graph shows the trend has not gone far enough:
There is only one safe number here: it is zero.
Then we have independent audit. Now we have anything but.
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One of the big auditing consultants got into urban planning consultancy and did the scheme for Brighton seafront, based on a half-day visit from some junior who did not talk to any of the existing users who had been there for the previous hundred years. All the long-established users such as the rowing and boating clubs were kicked out and replaced by clubs. These brought drug dealers and other criminals in their wake, which became a major problem. Also as part of the project we got an inappropriate landscape redesign.
Now the seafront is mostly about people sitting in the sun and boozing, which is profitable for the council which is the landlord. But it provides exactly the right setting for the yob culture which is now the dominant feature of the resort especially at weekends where it is a favourite destination for stag parties and hen parties. It is also the right setting for the rough sleepers who turn up in the winter.
Self-regulation is manifestly ‘unfit for purpose’ here. In order to remove the perverse incentives and conflicts of interest in the current valuation and auditing standards and processes, a state body should itself commission all of those valuation and auditing standards and processes on behalf of creditors and shareholders (rather than allowing management, legal and financial insider professionals free reign in their own self-serving interests). The negotiations for the contracts to actually do the work should concentrate on the quality and depth of due diligence (as opposed to requirements of the insiders. In the UK, some combination of the Bank of England, HMRC and the National Audit Office would be a good starting point. In doing so, they should follow the precautionary principle (i.e. financial innovation should be prohibited unless specifically approved, as opposed to permitted unless specifically prohibited).