The FT carries this today:
As an indication of the times it is pretty telling.
The Tories are not interested in audit reform: why upset their chums? And who cares anyway if the odd company goes to the wall because monopoly suppliers don't do their job properly?
Whilst let's make progress over private dinners.
I could summarise this by saying 'the chaps are back in town'.
And for those of a certain age, that's not a reference to Thin Lizzy's 'The boys are back in town': the contrast would be stark.
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This article: “The top UK accounting scandals of 2019”
https://www.accountancyage.com/2019/12/09/the-top-uk-accounting-scandals-of-2019/
Finishes with the line: “Of course, those who don’t learn from history are doomed to repeat it. See you next year.”
Indeed.
Perhaps at this point some loud reminders about Thomas Cook are in order. Enough people were affected by that episode for it to make an impression if they were to discover that nothing would come of it?
@Marco Fante,
I agree that significant sustained public outrage is required to compel governments to shift position and legislate on issues such as persistent failures by auditors that result in serious damage being done to the interests of workers, consumers, suppliers and ordinary investors. In the Thomas Cook case, the government was very quick to shake the magic money tree to fund what was described as the largest peacetime repatriation of the citizens affected so as to quell and dampen any sustained public outrage that might arise. In many other cases, the damage was done to limited numbers of workers, suppliers and investors – generally in specific geographic areas – and consumers generally were not affected (or did not experience any sustained damaging impact).
However, sustained public disgust and anger led to the imposition of the ill-conceived price caps on the electricity and gas companies and the sector regulators are being encouraged to crack down on the gouging (ultimately of final users) being perpetrated by the energy networks and the water companies. Similarly, some efforts are being made to crack down on the “loyalty penalties” being imposed by so many companies when periodic contracts are being renewed – and often being imposed on vulnerable consumers. But a lot more needs to be done.
In contrast, the big auditing and accountancy firms are reasonably confident that however badly they behave they are unlikely to stir up the sustained public anger and disgust that will force government to crack down on them. But they badly need to be shaken, and forcibly shaken, out of their comfort zones.
I rarely advocate radical change. It invariably has damaging unintended consequences. I much prefer to work with the grain of existing institutional arrangements than may be revised and be made to apply more effectively in the public interest — with additional powers, instruments and procedures being added as required. But, for auditing, the institutional arrangements have been corrupted beyond any redemption. The paltry fines imposed are simply absorbed as a cost of doing business and any senior individuals implicated are spat out and treated as inconsequential collateral damage.
All businesses operate under licence granted by society that is enshrined in law. Limited liability is a privilege accorded by society to facilitate the functioning of business in the public interest. In my view the primary function of auditing is to assess the extent that businesses in terms of quantifying their activities in monetary terms are complying with the licence they have to operate and are not abusing the privilege of limited liability. Auditing is therefore a public function and a public good. It should be performed only by a suitably empowered and resourced public entity.
Given the international arrangements and interconnections, I’m not sure whether one country could effect this change unilaterally. But I would commend it to the house and it might be useful to consider the extent to which other advanced economies are affected by the corruption of auditing and are open to a change of this nature.
The Thomas Cook incident involved a level of shock and publicity that was much greater than usual, it affected a lot of normal people and the company was old and iconic so on that basis I though that it would make a good example for the purposes of argument. Now one is going to try to dismiss the incident or talk it down either.
Regarding this from your comment: “auditing is to assess the extent that businesses in terms of quantifying their activities in monetary terms are complying with the licence they have to operate and are not abusing the privilege of limited liability”.
That’s well said and I agree. Given that the auditing provided by the big corporate accountants continually fails us in that regard a case could easily be made for bringing an end to the privilege of limited liability. Well, for that, and other reasons.
https://www.theguardian.com/business/2004/oct/24/politics.money
https://whatyouwilllearn.com/book/thecorporation/