Industry minister Margaret Hodge defended the wording of the new offence in
the company law reform bill as it began its journey through the Commons after
clearing the Lords.
She made it clear that criminalising improper auditing was a quid pro quo for
permitting accountancy firms to negotiate proportionate limitations to their
liability following a failed audit.
Hodge insisted: ‘The introduction of the new offence is balanced with the
introduction of new clauses that will limit liabilities for auditors.’
The bill came under attack this week when the CBI insisted that the measures
in the bill to tighten up audit rules could cost business more than £250m.
The CBI also fears that auditors will become cautious, increase the number of
checks, and make audits more expensive for corporates as a result.
So far, though, Hodge has stood by her guns. ‘We believe that ‘recklessness’
is a high hurdle that would have to be overcome were a prosecution to be
successful,’ she said.
Tory MP Justine Greening, a member of the ICAEW, urged the government ‘to
think long and hard’ about criminalising the reckless auditing of accounts, and
suggested that ‘dishonestly or fraudulently’ might be a better phrase.
She said that in a risk-based approach to auditing it was ‘often very
difficult’ to draw a line between when to accept management explanations of
anomalies in an audit.
But Labour MP Austin Mitchell disagreed. ‘Unless we ensure there is better,
more effective control and regulation, we are paving the way for a series of
scandals,’ he said.
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