So writes Professor Prem Sikka director of the Centre for Global Accountability at the University of Essex (Accountancy) in a recent article.
By colonising bodies such as the International Auditing and Assurance Standards Board and the UK’s Financial Reporting Council, big accounting firms control the production of auditing standards. Various international auditing standards, codes and related pronouncements, for instance, cover about 3,000 pages but remain silent on auditor accountability to the public.
The public bears the cost of audits and audit failures, but has no right to see audit files or to make an assessment of the quality of audit work. Legal cases show that, even despite an admission of negligence, auditing firms escape liability because under UK law they do not owe a “duty of care” to any individual shareholder, creditor, employee, pension scheme member, or any others affected by their negligence.
The silence of the auditors at distressed banks is well documented though this has resulted in little effective action. No auditing firm has returned the fees for dud audits. Earlier this year, nearly six years after the banking crash, the Wall Street Journal reported that a US auditing regulator found more than one in three audits inspected were considered to be deficient and did not provide enough evidence to enable auditors to reach a conclusion.
Who will audit the auditors?
What should we do with producers who routinely deliver faulty goods and services? Producers of cars, food, medicines, aeroplanes and even financial products are forced to compensate injured parties, recall their goods and face the possibility of being forced out of business. But such niceties do not apply to the auditing industry.
A damning report was produced by the International Forum of Independent Audit Regulators (IFIAR), an organisation representing audit regulators of 49 jurisdictions, including Australia, France, Germany, Italy, Japan Spain, UK and the US. This IFIAR report was compiled from the audit inspections carried out by national regulators and focuses on audits of major listed companies. The audit market for these companies is dominated by the Big Four accountancy firms – Deloitte Touche Tohmatsu, Ernst & Young, KPMG and PricewaterhouseCoopers – and smaller rivals Grant Thornton and BDO. Their combined global revenue is around US$120 billion and the “too big to close” syndrome continues to prevent effective regulatory retribution.
Auditors will continue to audit the very transactions that they themselves have created
The post banking crash auditing reforms recently announced by the EU require that financial institutions and listed companies change their auditors every 10-24 years, something which will not prevent collusive relationships between companies and auditors. The EU will impose further restrictions on the auditor’s ability to sell consultancy services to their clients, rather than imposing a complete ban. So auditors will continue to audit the very transactions that they themselves have created.
Minimalist reforms are welcomed by the auditing industry, but do not address the problems identified above . . .
Auditors should owe a “duty of care” to all stakeholders who have reasonably relied on audit reports. The consumer rights revolution which applies to even mundane things like toffees and potato crisps also needs to apply to producers of audit opinions. All auditor files should be publicly available so that interested parties can make their own assessment by considering the composition of the teams, time spent, horse trading with company directors and conflicts of interests.
The above proposals can stimulate competition and hnf and thus create incentives for accounting firms to escape the cycle of institutionalised failures. No doubt, auditing firms would oppose any proposals that strengthen their public accountability, but the reforms can save them from their own follies.
Read the whole article here: https://theconversation.com/big-auditors-must-be-made-accountable-to-the-public-25766
Government has never tried to recover legal costs from promoters of tax avoidance schemes and continues to award them taxpayer funded contracts
Despite the evidence of fraudulent schemes, no major accountancy firm has ever been disciplined by any professional accountancy body
Professor Prem Sikka writes that Her Majesty’s Revenue and Customs (HMRC) is investigating some 41,000 tax avoidance schemes, but there is still no investigation of the industry that designs and markets aggressive tax avoidance schemes . . .
Now the public accounts committee (PAC) chair Margaret Hodge has PwC, Ernst & Young, KPMG and Deloitte in her sights. The PAC should investigate the role of these firms in organised tax avoidance. An earlier internal HMRC study estimated that these four firms “were behind almost half of all known avoidance schemes” . . .
Despite the evidence, no accountancy firm has ever been disciplined by any professional accountancy body and despite spending millions of pounds to quash predatory schemes, the UK Treasury has never sought to recover the legal costs from the promoters of the schemes. Instead, the big accountancy firms continue to receive taxpayer funded contracts . . .
No government will be able to effectively tackle tax avoidance without shackling the designers and enablers.
Read the whole article here: http://www.guardian.co.uk/commentisfree/2012/dec/08/predatory-practices-accountancy-firms