Bank auditors accused of "complacency"

by Kevin Reed

More from this author

30 Mar 2011

  • Comments
Lords economic affairs committee audit report

THE "COMPLACENCY" of bank auditors was a "significant contributory factor" in the banking crisis, a Lords committee has concluded.

In a highly critical report, the House of Lords' committee on economic affairs has found after its eight month inquiry that a lack of dialogue between bank auditors and regulators contributed towards the need for government bailouts for banks.

"We regard the recent paucity of meetings between bank auditors and regulators, particularly in a period of looming financial crisis as a dereliction of duty by both auditors and regulators," stated the report.

Claims by the Big Four that the auditors had carried out their duties properly during the crisis were dismissed by the committee.

"We do not accept the defence that bank auditors did all that was required of them.

"In light of what we now know, that defence appears disconcertingly complacent. It may be that the Big Four carried out their duties properly in the strictly legal sense, but we have to conclude that, in the wider sense, they did not so."

Although auditors and bank regulators have initiated plans to begin closer dialogue, the committee wants to go a step further and introduce a statutory obligation for regular meetings.

The Lords also concluded that auditors cannot take for granted that banks in difficulties will be bailed out by the government and taxpayers. The committee refused to accept that a bailout should be a decisive consideration in making a "going concern" judgment.

The committee was unimpressed with PwC's audit conclusion in January 2007 that gave Northern Rock a clean bill of health for its 2006 accounts. The committee cited FSA research that at the time pointed to the bank's business model as more risky than its peers.

"We find this complacency disturbing," said the committee.

The committee also criticised the auditors for providing clean bills of health prior to the banking collapses.

PwC's concerns with Northern Rock were flagged up to the FSA in September 2007, shortly before the bank called for emergency funding. But PwC's decision to sign off its 2007 accounts without a going concern due to the availability of funding in the wholesale markets was not accepted by the committee.

"A going concern qualification was clearly warranted in several cases, even if the auditor may understandably have been reluctant to make it for the reason referred to..."

 

(Picture shows members of the Lords economic affairs committee delivering the report earlier today ©Iain Winfield/Incisicve Media)

Visitor comments

blog comments powered by Disqus
display:none

Add your comment

We won't publish your address


By submitting a comment you agree to abide by our Terms & Conditions

Your comment will be moderated before publication

Submit
  • Send

Divisional Financial Controller - Social Sciences

University-of-Oxford-120x60University of Oxford - Oxford - £65k per year

 
 
 
 
 
 
 
 

 

Newsletters

Get the latest financial news sent directly to your inbox

  • Best Practice
  • Business
  • Daily Newsletter
  • Essentials

Careers

Search for jobs
Click to search our database of all the latest accountancy roles

Create a profile
Click to set up your profile and let the best recruiters find you

Jobs by email
Sign up to receive regular updates with the latest roles suitable for you

Briefings

budget-management

Why budgeting fails: One management system is not enough

If budgeting is to have any value at all, it needs a radical overhaul. In today's dynamic marketplace, budgeting can no longer serve as a company's only management system; it must integrate with and support dedicated strategy management systems, process improvement systems, and the like. In this paper, Professor Peter Horvath and Dr Ralf Sauter present what's wrong with the current approach to budgeting and how to fix it.

cchcover

iXBRL: Taking stock. Looking forward

In this white paper CCH provide checklists to help accountants and finance professionals both in practice and in business examine these issues and make plans. Also includes a case study of a large commercial organisation working through the first year of mandatory iXBRL filing.