COMMENT – Auditors should say no to Y2K

Imagine a letter arriving on the desk of a managing director of aK compliance shows it is time they left some of the responsibility with directors, says Peter Williams. small or medium-sized company which goes something like this: ‘Dear Supplier, please get your auditors to send us a certificate confirming that all your systems will be Year 2000 compliant by 31 December 1999 and that he is not going to qualify your accounts because of this millennium bug. Thanks very much. Yours, IT department of Big FTSE 100 company.

PS. Those that can’t confirm the above may find that we no longer require their services.’

Sounds like a joke but it is not. I paraphrase of course, but such letters have been sent, and auditors – and their professional bodies – are quite rightly up in arms about it.

The only good news is that these missives have emanated from the systems department of the big companies and have not been seen, approved or signed by the chaps in finance.

But even so, a managing director of a growing business may well feel tempted to copy the letter on to his auditor who, as we all know, is keener than ever in these days of strong competition to provide the service which the clients want. But this is one issue where service has to take second place to professional responsibility.

Asking for such an undertaking from the auditor completely misunderstands his role and responsibilities. And replying in the affirmative to such a letter would be commercial and professional madness. The role of the auditors is to ensure the accounts present a true and fair view and comply with the requirement of the Companies Act.

A recent survey by Cap Gemini found one in six companies will miss the 31 December 1999 deadline. Who knows if that is accurate but at this stage it is impossible for auditors to second-guess whether the directors will fulfil their legal duties and sort out their systems in time.

Just because auditors should politely decline such requests does not mean that they can happily ignore the issue. Auditors are starting to give greater attention to the impact on their clients.

Issues that are relevant to auditors include disclosures in the financial statements, the implication for the auditors’ report on the financial statements and – yes – the effects caused by Y2K failures in customers and suppliers.

But auditors cannot forecast whether future years’ accounts will be qualified, and attempting to rely on third-party confirmation that everything will be OK is definitely not the way ahead.

Peter Williams is a chartered accountant and editor of the newsletter Electronic Finance.

Related reading