Auditors failed when signing off bank accounts

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The Guardian reports:

The role of accountants in the banking crisis was thrust into the open yesterday when the Financial Services Authority said that the profession had not been sceptical enough about the financial firms it audited in the run up to the banking crisis.

The City regulator, setting out a case to have the powers to publicly censure and fine auditors, also noted that some firms appeared to be "systemically aggressive" in some of their accounting policies.

Paul Sharma, FSA director of prudential policy, said: "Our experience has indicated that, at times, auditors have focused too much on gathering and accepting evidence to support firms' assertions, rather than exercising sufficient professional scepticism in their approach. This falls far short of what the FSA — and society at large — expects from auditors."

The FSA said its work since the banking crisis had led it to question whether auditors had been "sufficiently sceptical" when challenging the models used by management to measure their bad debts and said it was "concerned that the dispersion in valuations — both within and between firms — for similar items is higher than might be expected".

It said there had been an "inadequate level of challenge to firms' management" from auditors about some of the crucial assumptions they make in deciding whether to take a provision for a loan that is not being repaid.

The regulator is particularly scathing about the way auditors tackled client assets — where, since Lehman's collapse, firms must show they keep client's money safe — saying it had found "material weakness" in some reports filed by auditors.

What can I add? Except the likes of Prem Sikka, Dennis Howlett, Francine McKenna and I can all say “we told you so”.

And “when will they listen?”

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