As the FT notes this morning:
Allegations of police bribery at the News of the World have raised fresh questions about the role of auditors and their responsibility for preventing corporate wrongdoing.
But as preparations are made for a judge-led inquiry into the disgraced tabloid, the firm that vetted its accounts seems unlikely to face investigation by audit regulators, at least not in the coming weeks.
As the they note, Ernst & Young has audited News Group Newspapers for more than a decade and never qualified its accounts. But they then note:
But the details that have so far emerged raise questions about whether Ernst & Young fully discharged its duties, according to Richard Murphy, a former auditor who runs the Tax Research UK consultancy.
“What Ernst & Young did or did not do is an issue of concern,” said Mr Murphy, who campaigns against corporate tax dodging.
Media coverage of questionable practices at the News of the World over several years ought to have caused Ernst & Young to suspect its internal controls, he said: “The auditors must surely have done the most basic of Google searches on their client.”
Ernst & Young is saying nothing, citing client confidentiality. Which is fair enough, but I note the FT found little problem finding people to defend them.
However, members of the financial establishment say it would be unfair to expect auditors to challenge small payments amid the flow of hundreds of millions of pounds in and out of the business — assuming any bribes were of the order of thousands of pounds, as reports suggest.
Mike Power, an accounting professor at the London School of Economics, said: “I don’t think they [the auditors] are on the hook.”
That's an odd idea given the regulatory framework for auditing I noted here, which gave rise to this story. But as the FT notes, the profession is very reluctant to investigate anything until it has to, about which might as the FT says:
In the meantime, the News of the World saga could feed into a broader debate about whether audits have become irrelevant and need to be rethought.
It is a debate Ernst & Young knows well, given the adverse comment that its auditing of Lehman Brothers has already attracted.
I personally think this one will run, and run.