'Audit cartels' mean UK risks accounting scandals
A grim warning that accounting scandals are as or more likely in Britain as the US is being delivered at a press conference in the Commons this afternoon.
Labour MP Austin Mitchell and Professor Prem Sikka of the Accounting and Business Affairs Association will speak out as the launch of their book ‘Dirty Business: The Unchecked Power of Major Accountancy Firms’ demanding major reforms.
In a statement issued in advance they accused the government, the ‘big accountancy oligarchs’ and the accountancy bodies of issuing a ‘smokescreen of complacency’ over the possibility of anything like the WorldCom and Enron scandals occurring in the UK.
And they complained of ‘self induced amnesia’ over scandals including BCCI, Maxwell and Polly Peck with ‘questionable accounting practices? at Wickes, Transtec, Versailles ‘and many more?.
They said: ‘British frauds may be smaller, but the scams operated by Enron, WorldCom and Xerox are perfectly possible in this country because the same practices go on here and the UK system of regulation is both less effective and less powerful that the US.
‘Britain does not have a SEC. The poorly equipped Serious Fraud Office and Crown Prosecution Service is no match for corporate crooks and their Nelsonian auditors.’
Mitchell and Sikka welcomed the government’s ‘belated’ review of accountancy and audit but complained the Department of Trade and Industry had already given firms protection from negligent lawsuits and backtracked on the manifesto commitment to set up independent regulation for accountants.
Ministers’ sole action had been to add ‘an impotent Foundation’ to 22 other self-regulatory bodies dealing with accountants, none of which could punish or was powerful enough to deter bad practice. They declared: ‘The need for action is urgent.’
Mitchell and Sikka complained accountancy firms use audit as a stall for selling other services, devising company transactions and systems of control and hire management and then report on the same.
They said the absence of a ‘duty to care’ to individual stakeholders affected by audit dilute the economic incentive to deliver good audits and the longevity of audit appointments encourages personal relationships with company directors.
They added: ‘Frequently audit staff are auditing their own former senior colleagues and partners, now enjoying a directorial position in a client company.’
They said their book showed that ‘in pursuit of profits, major accountancy firms operate cartels, launder money, front shell companies, devise tax avoidance and evasion schemes, bribe officials and obstruct inquiries.’
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They claimed: ‘Audit work is routinely falsified and firms are not required to publish any meaningful information about their affairs.’