PracticeAuditPenrose disappoints FDs

Penrose disappoints FDs

The majority of finance directors believe that the Penrose report was wrong when it refused to examine the role played by auditors in the near collapse of Equitable Life.

Almost 60% of respondents surveyed in the latest Accountancy Age/Reed Accountancy Big Question survey thought that the 818-page report, unveiled at the start of this month, should have scrutinised the role of the company?s auditors.

The report strongly criticised the role played by former managers in the Equitable Life case, where some 800,000 people lost money after the company made financial promises to policyholders, which it ultimately could not honour. Lord Penrose found a ‘culture of manipulation and concealment’ among some of the former senior managers. Big Question respondents, however, wanted to know what the auditors were doing.

‘From what I have read of the case, the crisis was brought about by the company offering guaranteed annuity rates, and when the market moved against them, they could not honour those guarantees as the market annuity rates were much lower,’ said John Buckley of Sauter Automation. ‘Is this not a risk which should have been identified by auditors?’

This was a view that was backed by many respondents, with a quarter believing the report definitely should have focused more on the role of the auditors, and 34% answering ?’yes, probably’.

‘There should be independent auditors appointed by the Financial Services Authority, funded by the financial services industry, to ensure that a completely impartial view is taken,’ said one anonymous respondent.

Glen Le Moigne at Denplan called for an ‘independent inquiry into the role of auditors so that their failings can be ascertained’.

But the survey also found FDs who said people should not be so quick to blame the auditors and their role ð or lack of it ð in failing to uncover the demise of Equitable Life earlier.

Altogether, 18% said no to the question ð 10% answered ‘no, probably not’ and 8% ‘definitely not’.

‘It is wrongly attractive to find scapegoats,’ said Bryan Armour of the Parchment Housing Group.

John Davies at Moore & Blatch was even more adamant. ‘Guarantee equals a formal promise or assurance that an obligation will be fulfilled. What’s so difficult for the Equitable managers to understand?’

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