The FT had a story yesterday with the headline:
As the story noted:
Deloitte has been ordered to pay a record fine of £15m plus legal costs of £5.6m for committing serious misconduct when it audited Autonomy, a former FTSE 100 technology group at the centre of one of the UK's biggest accounting scandals.
They added
The Big Four accounting firm and two of its audit partners failed to act with integrity, objectivity or professional scepticism when they vetted Autonomy's financial statements and disclosures to regulators in the years leading up to its disastrous acquisition by Hewlett-Packard for $11bn in 2011, an independent tribunal found.
There were consequences:
The sale was followed by an $8.8bn writedown by HP of the value of Autonomy, a fraud investigation, court proceedings in the UK and US – including against its founder Mike Lynch – and a jail sentence for its former chief financial officer, Sushovan Hussain.
So why did it take so long for an appropriate fine to be levied and those responsible to be barred from the profession for an extended period? Simply because Deloitte gamed the system rather than accept liability.
And then, having done so their claim is that ‘this all happened a long time ago'.
I am pleased to note that for once the regulators were not taken in. As the FT noted:
The tribunal has commanded Deloitte to carry out a “root cause analysis” into its own misconduct and explain why its audit compliance systems did not prevent “serious and serial failures”.
The issue is ongoing then, in their opinion. As is the evasion of responsibility.
But what is also clear is that the tribunal thinks no lessons have been learned as yet. And that's why current token gesture audit reforms are not good enough.
This will be an issue to which I will be giving much attention over the next year.
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The next year will be extremely interesting.
Asset carrying values, impairments, goodwill reviews, substance over form, transfer pricing and tax charges, pension scheme liabilties and going concern assessmments have always been at the heart of the certification process and we have seen that before COVID auditors have had a lot to answer for.
During and after Covid these issues are and will be increasingly critical for us all.
How will they cope going forward, how will they amend their practice so as to provide the assurances that we will all ( pensioners, taxpayers, shareholders, consumers, suppliers) need.
Is it Sunak’s job to get this right, which government departments is responsible for an accounting/ auditing meltdown?
BEIS
And it is wholly unequipped to deal with it, having long ago abandoned the obligation to the profession
Surely these audit firms should be barred from hustling for management consulting business which by definition conflict with the audit function?
Deloitte is raking in the cash for the failing lighthouse labs – surely auditors should be auditors, and that’s it?
I agree
time to reinstate unlimited liability
I’m a bit late to this one, but have you considered the role that the other set of auditors could have in financial auditing?
There is a complete industry auditing to ISO9000 (and ISO14000 etc), who don’t look at the books at all currently. ISO9000 has a focus on customer as the primary stakeholder in product realisation, so a financial failure will have obvious consequences.
In my experience the quality auditors have a practical, engineering background, where facts are required and checked.
I know that financial firms don’t generally register to ISO9000, but most manufacturing and many related services businesses do.
One of your other readers, or academic contacts will know more about this than me.
But we are talking about financial auditing…