Overview: future standards

John McFall, chairman of the House of Commons Treasury committee, is
supervising its examination of banks in the financial crisis. But this also
includes the system of bank audits. His conclusions have the potential to
trigger wholesale change in the way banks are audited.

What’s happened…

So much has been written about the financial crisis that it hardly seems
worth going over what must now be very familiar ground. But after the collapse
of Northern Rock, its nationalisation and the bailing out of the High Street
giants, McFall’s Treasury committee recently embarked on a close examination of
the system of bank audits as part of a broader look of the banking crisis.

What’s going to happen…

The hearings finished this week, so essentially we wait for McFall and his
committee to publish its report. McFall has quizzed academics, auditors,
consultants bankers and journalists and will now start work on drawing
conclusions, among them, whether the audit of banks needs to change radically.

The question is, will McFall and his committee accept the more extreme
suggestion that bank audits should be taken away from the private sector and
given to a regulator, like the Bank of England, or will he take a more
conservative line? Conclusions from the Northern Rock hearings suggested the
committee was very concerned about PricewaterhouseCoopers on the one hand being
auditor and, on the other, signing ‘letters of comfort’ in connection with
certain securitisation deals, a view that hints at a certain discomfort over
some of the work the auditors are currently doing.

Of course, the Treasury committee has no power to directly change the system
of bank audits. But it could be so cutting in its critique, and so sweeping in
its recommendations for change, that it could create the momentum needed to
compel government and regulators to look seriously at the issue. Something they
haven’t done so far.

A visiting professor of business at Glasgow University and educated through
the Open University, McFall takes his work seriously and is considered highly
influential by fellow parliamentarians.

Caithness, Sutherland and Easter Ross MP John Thurso, Lib Dem business and
enterprise spokesman and fellow committee member, describes him as ‘no-nonsense’
and a ‘joy’ to work with.

‘He is not an intellectual economist, which is all to the good because he
takes a robust no nonsense and common sense approach.’

His conclusions after the Northern Rock hearings showed he didn’t feel any
blame could be placed on the auditor. But that doesn’t mean he won’t conclude
that the system is wrong. McFall’s forthcoming report could be the very document
that sets the agenda for the future of bank audits for years to come.