PracticeAuditSigh of relief as Timms dispels fears over ‘reckless auditing’

Sigh of relief as Timms dispels fears over 'reckless auditing'

The government has pledged not to introduce the offence of reckless auditing with retrospective effect

Fears have been allayed that the introduction of a criminal offence for
‘knowingly or recklessly’ including anything misleading in an audit report would
apply to earlier audits.

Stephen Timms MP, in one of his first speeches since taking on the role of
minister of state for competitiveness at new business department DBERR, said
that the new provision would come into effect for audits of financial reports
for accounting periods beginning on or after 6 April 2008.

‘We have said we plan to commence the new offence in April 2008. Members of
the audit profession have quite reasonably asked us to clarify exactly what this
means.

‘I am happy to announce today that this new provision will come into effect
for audits of financial reports for periods beginning on or after 6 April 2008,
and not for reports on any earlier periods,’ Timms said during a speech at the
ICAEW headquarters.

Effectively the vast majority of accounts for 2008/09 have accounting periods
beginning before that date and will not come under the provision.

Some had feared that the provision could apply to audits retrospectively, and
had pleaded for clarification.

‘I am delighted that the government has listened to the concerns of the
institute and others in the profession and has taken on board our request that
the new provisions should not apply retrospectively to audit work performed
before the implementation date. Our goal has always been to ensure that the
quality of the audit is maintained,’ said
ICAEW chief executive
Michael Izza.

The ‘knowingly or recklessly’ clause in the Companies Act has caused much
consternation in the profession, particularly among the Big Four who recruited
lawyers to cut through the semantics.

The government had tried to head off their concerns, and those of the Tories
and Lib Dems, about the wording.

Then constitutional affairs minister Vera Baird said that ‘a person who is
merely negligent will not be guilty of this offence, even if the negligence is
gross’.

Audit Quality Forum chair Gerald Russell has previously warned that the
drafting of the bill left the door open for auditors to face criminal action for
not checking the minutiae of accounts.

‘Our fear is it might damage audit quality, that boxes are ticked and people
have their backsides covered, so auditors could move away from being thinkers,’
he said.

Related Articles

PwC replaces EY as Domino's auditor

Audit PwC replaces EY as Domino's auditor

5d Alia Shoaib, Reporter
The ‘uncomfortable truth’ behind FRC’s Big Four fines recommendations

Audit The ‘uncomfortable truth’ behind FRC’s Big Four fines recommendations

2w Carl Johnson, Stephensons
BDO holds off Big Four to retain top position as AIM auditor

Audit BDO holds off Big Four to retain top position as AIM auditor

2w Alia Shoaib, Reporter
FRC urged to fine Big Four firms penalties over £10m

Audit FRC urged to fine Big Four firms penalties over £10m

3w Alia Shoaib, Reporter
EY to audit Standard Chartered bank

Audit EY to audit Standard Chartered bank

1m Alia Shoaib, Reporter
KPMG replaces PwC as Croda auditor

Accounting Firms KPMG replaces PwC as Croda auditor

2m Emma Smith, Managing Editor
EY fined £1.8m over Tech Data audit

Accounting Standards EY fined £1.8m over Tech Data audit

2m Emma Smith, Managing Editor
Top 50+50: Firms post significant growth in new tax and audit rankings

Audit Top 50+50: Firms post significant growth in new tax and audit rankings

2m Emma Smith, Managing Editor