Fears remain despite penalty reforms

Accountants and lawyers continue to express concern about the introduction of
a criminal offence for a ‘reckless’ audit, despite the removal of a potential
jail sentence and assurances from the government that it will not unwittingly
trap the innocent.

Despite fears expressed by lawyers and the audit community when the clause
was first introduced in March, the government has remained determined to keep it
in the bill. However, the imprisonment penalty was removed from the clause and
replaced by an unlimited fine.

Minister for industry Alun Michael believes that discussions since the
offence was first mooted have allayed most of the worries.

‘I think there were some misunderstandings about what was meant by reckless,’
said Michael. ‘At first the accountancy community were thinking an entirely
external definition of reckless was being imported by putting this into the

‘What I believe reassured those that had reservations was that the normal
legal meaning of reckless (which the courts are used to interpreting) will be
used, not some extraneous concept that we were intending to place on the face of
the bill.’

But some in the profession want a clearer guarantee that the new offence will
not penalise honest mistakes.

‘While we have been assured that the test for recklessness will be very high
and that behaviour resulting from honest errors should not result in
prosecution, we would welcome a statement from ministers clarifying the intent
behind this in the context of an audit to reduce the likelihood of unintended
consequences,’ said ICAEW chief executive Eric Anstee.

Victoria Cochrane, general counsel of Big Four firm Ernst & Young, warned
that the clause could have an adverse knock-on effect.

‘It may force auditors into more defensive auditing, which is not where the
profession or investors want to be,’ she argued.

Lawyers have also questioned the government’s assertion that the bar for the
reckless test is set very high.

‘The concept of recklessness will cause difficulty when applied in the
context of an audit,’ said John Trotter, head of professional negligence at

‘If the same definition of recklessness is applied by the courts to this
offence as to others, this will be a worryingly low threshold.’

But David Heathcoat-Amory, Tory MP and ICAEW member, said that the
introduction of a criminal offence seemed ‘reasonable’ as the burden of proof
for a criminal conviction – beyond reasonable doubt – would be a much higher
hurdle than the ‘on the balance of probabilities’ test that applies in civil

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