View from the House – Austin Mitchell

As scandals and audit failures multiply, each is guaranteed to draw a ritualistic response from the auditing industry. Promises of improvement and statements on tougher regulation and codes of conduct multiply. Disciplinary arrangements are tweaked.

The one thing no-one looks at is the value systems which govern the conduct of audits. Instead of values we get a culture of blame. The audit industry blames anyone available for its own failures: poor company management, greed, the expectation gap, deficient auditing and accounting standards.

Yet we now have a plethora of accounting and auditing standards, all designed as protective mechanisms for auditors, all of which entrench the status quo.

This encourages a ‘safety first’, cover-your-backside compliance mentality which never questions whether the knowledge base of auditing or the value systems incorporated in auditing standards are themselves responsible for audit failures.

The industry itself has all too little economic incentive to deal with audit failures. It enjoys a statutory monopoly and has no duty of ‘care’ to any individual stakeholder.

Most audit failures go ignored unless the company collapses. So what is the incentive to improve the quality of audits because the liability concessions demanded by the industry and its proposals for capping liability would dilute these minimal incentives to improve quality even further.

Firms happily describe audit as a ‘product’. Yet they do not accept any of the quality controls normally applied to products. There the market is guaranteed by the state and the usual market pressures for good audits are weak. The whole thrust of auditing regulation is for standardisation of product rather than its serviceability. The focus is on compliance not on outcomes.

We have built a protective shell which insulates the audit industry from reality. In its eagerness to protect itself from the consequences of its own failure, all this is a reflection of paranoia not confidence.

Yet without public trust and confidence the industry cannot flourish. As concern and failures multiply, action becomes inevitable. No carapace can protect the industry from that forever.

Austin Mitchell is Labour MP for Great Grimsby.

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