Controls must stay

Auditors want to wriggle out of their duties to shareholders and theport, take away auditors and directors’ public responsibility to report on companies’ internal controls. public, critics argued last week, after the publication of guidance for auditors reporting on internal controls.

The guidance, written by the Auditing Practices Board as a consultation document, rejects calls for auditors to give an opinion on the internal controls as part of their statutory audit duties.

It follows the Hampel report which eased the reporting burden on directors and auditors. Hampel overruled statements in the Cadbury report which said directors should comment publicly on the state of internal controls. Instead, Hampel said directors no longer needed to comment on the effectiveness of internal controls, and auditors could transmit any concerns they might have in secret.

Ian Plaistowe, chairman of the board, said it would be wrong for auditors to comment on internal controls based on their audit of the financial statements.

If directors or shareholders want the auditors to express an opinion on internal controls, the document states, they must commission a separate service.

The additional work that auditors would need to carry out, says the report, is onerous.

‘Auditors engaged to report on financial statements,’ concludes the report, ‘therefore have no responsibility to understand and evaluate the system of internal control beyond the level sufficient to plan and develop an effective audit approach unless there is specific statutory, regulatory or additional contractual requirement to the contrary.’

Labour MP Austin Mitchell condemned the document, claiming it was an attempt on the part of the accountancy profession to absolve external auditors from the responsibilities they have to the public and to maintain a strong system of internal controls.

‘It plays down the major role that internal auditors should have in maintaining internal controls and supervising external auditors,’ he said. ‘It endorses the Hampel report that they should report privately on internal controls even though they have a public responsibility,’ he added.

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