Regulators prepare for possible demise of Big Four

International accounting regulators are preparing for the possibility of a
Big Four firm collapsing due to an accounting scandal.

The recently-formed
International forum of
Independent Audit Regulators has announced rescue plans for dealing with the
possibility of an Andersen-style firm collapse. The announcement includes
suggestions that the idea may be tested in a crisis simulation exercise next
month.

Regulators spent the last 18 months working on policy to address response to
concerns around the collapse of a Big Four firm and its potential to destabilise
markets and threaten the flow of audited financial information.

According to the
FT, Ifiar has looked at examples of how administration was used to
deal with troubled companies placed in the control of court-appointed directors,
creditors, or insolvency practitioners.

An ‘administrator’ would stay in place until the facts of a scandal were
established and a decision could be taken on a firm’s future, in the same way
that a company continues trading in a time of crises, until a rescue operation
begins to secure creditor money.

Ifiar’s chairman,
Jeffrey
Lucy, who also chairs the Australian Securities and Investments Commission,
said the regulator could use a similar technique when a firm’s audit reputation,
rather than its solvency, was in question.

‘If you take a similar approach, you could allow an accounting firm to
continue under an independent party reporting to a court or regulator,’ he said.
‘That may well provide sufficient confidence for the firm to continue to sign
audit reports.’

Lucy plans to propose the idea as one of several to be ‘stress-tested’ in a
one-day workshop with Ifiar’s 20 or so members in Tokyo in March.

Further reading:

Watchdogs team up on audit regulation