Investors are to pressure the government to resist proposed changes to the
company law reform bill, which they claim would dramatically cut the
responsibilities of auditors and further limit their liability exposure.
Amendments to clauses 359 and 486, relating to the duty to keep accounting
records and the duties of auditors, were proposed by opposition Treasury
spokesman Baroness Noakes earlier this month.
Investors said the amendments were a ‘stealth move’, that would radically
reduce the auditor’s duty to ensure proper books and accounting records have
There is a fear that if such amendments are accepted, the quality of audit
service provided to shareholders would be harmed, and responsibility would be
passed almost wholly onto company directors.
Failures on accounting records have been a key factor in several scandals,
such as Parmalat, Barings and Enron, and the amendments could remove auditor
responsibility from similar cases, investors claimed.
They also feared the change could impact on the ability to judge whether a
company remains a going concern and damage the UK’s claim to have an equivalent
system to Sarbanes-Oxley in the US.
One investor called the move ‘gerrymandering phase two’, referring to last
year’s concerns over the disappearance of the true and fair view as phase one.
Some of the most influential investor groups are banding together to enter into
discussions with the government to ensure the amendments are rebuffed.
Meanwhile, the government has abandoned plans to introduce sweeping new
powers in the company law reform bill that would allow it to amend future law
without having to introduce primary legislation in Parliament.
The u-turn was revealed when Trade and Industry minister Lord Sainsbury added
his name to a Liberal Democrat amendment, deleting several clauses from the bill
during proceedings in the Lords.
To prevent the bill becoming bogged down in a row over changes to the
legislative process, ministers will instead rely on similar highly controversial
powers to change the law through secondary legislation proposed in a separate
legislative and regulatory reform bill.
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