PracticeAuditLabour MP pushes for ban on non-audit work

Labour MP pushes for ban on non-audit work

Labour backbencher Austin Mitchell has launched his own Commons bid to outlaw auditors from carrying out accountancy consultancy work for businesses they audit, adding pressure to calls for a government measure to end the practice.

The Greater Grimsby MP won a formal first reading for his Companies Act Amendment Bill whose sole clause would prohibit auditors from selling any additional services to their audit clients.

Mitchell, who has campaigned to clean up the profession, said the practice ‘debases audits, makes the auditor an employee of the company and advisor of the company, creates economic dependence upon the company and compromises auditor independence.’

He added: ‘Auditors cannot create the corporate structures, advise on executive remuneration, mergers, downsizing, tax avoidance/evasion and then pretend that they can audit the resulting transactions in an independent and objective manner.’

The bill has no allocated backbench legislative time and is therefore, despite its brevity, unlikely to make much progress through the parliamentary process.

But it will act as another pressure point for a government measure.

Mitchell pointed to the allegations about Enron’s off balance sheet financing schemes and the creation of offshore subsidiaries in order to create opaque financial statements.

He said the problem was not new, referring to the 1976 DTI Inspectors’ report on Roadships Limited, which suggested auditor independence was compromised by auditors acting as consultants, with similar conclusions in a 1979 report on Burnholme and Forder Limited and the 1992 US Senate report on BCCI.

Mitchell said his bill strengthened the independence of auditors by avoiding conflicts of interest, requiring auditors to act exclusively as auditors, which he claimed was the original intention of the 1948 Companies Act.

And he accused the Department of Trade and Industry of failing to act because of its ‘collusive’ relationship with major firms.

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