PracticeAuditBan looms on directors becoming auditors

Ban looms on directors becoming auditors

Auditors may be banned from becoming directors of former client companies under tough new regulatory proposals being studied in Whitehall following the Enron scandal.

The bar may be included in a draft new Companies Act now in preparation pending the availability of Parliamentary time and the conclusions of a joint working group set up by the Treasury.

A clear hint as to the direction of government thinking came from Lord McIntosh of Harringay, a senior spokesman and chief whip in the Lords. He said: ‘One matter which shocked me about Enron was the extent to which staff members and partners of the audit firm then went on immediately afterwards to become directors of the company that they had audited.

‘I assume that that is also a matter that we shall be looking at.’

After being urged by Baroness Miller of Hendon to prohibit auditors from being consultants to companies they audit, he added: ‘So often these days consultants perform similar roles to those of directors, often without having the same responsibilities, which makes the matter even worse.’

McIntosh, replying to a question about the need for more City regulation following Enron said: ‘It would be unwise to assume similar problems could not arise here, and right that UK regulators should review their arrangements carefully in the light of these events.’

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