Letters - 4 March
While we’re laying blame
The fines imposed on Coopers & Lybrand by the Joint Disciplinary Scheme have attracted a lot of comment.
The JDS criticised Coopers for ‘losing the plot’ before the debacle, so no tears for them. The JDS has itself been criticised for taking too long and being too lenient in its judgments because it is a self-regulatory body.
No judgment will please everybody. The JDS, for better or worse, has completed its investigation and disciplined the auditors, and last year it took action against two accountant directors. But what has the state achieved in respect of the Maxwell company directors? We all recognise that the driving force behind this mischief lies on the Mount of Olives, beyond the reach of any earthly regulator.
But is it not extraordinary, that under the current UK legal and regulatory framework, the external auditor is fined and disciplined by a self-regulatory process for ‘losing the plot’, whereas none of Robert Maxwell’s fellow directors – whom any reasonable person would expect to have been closer to the plot – has suffered any statutory penalties at all?
The DTI has yet to publish its inspectors’ report into the Maxwell affair, but it does not have a robust record of effective action arising out of such reports. This government has been very critical of self-regulation and has gone so far as to try and impose changes on our profession’s own proposals to improve its procedures. But the profession’s much derided self-regulatory processes have delivered ahead of the state in one of the biggest financial scandals of this century.
A review of company law is currently taking place.
The opportunity must be taken to reconsider both the responsibilities of directors and the mechanisms for dealing with directors of companies where major frauds occur. Auditors are quite rightly blameworthy for failing to recognise what is going on under their noses. But can they ever be more blameworthy than directors? Directors also are paid to know.
Stella Fearnley & Richard Brandt, Portsmouth Business School, Southsea, Hants
Sick reality of auditor choice I am a partner of a small provincial firm of chartered accountants and registered auditors.
For many years, we have grown accustomed to the fact that, if a client of ours is perceived by a clearing bank to be in financial difficulty, then the bank will use the services of ‘reporting accountants’.
The usual results of this action is that ‘the reporting accountants’ believe the business to be viable, provided that they are appointed auditors to the distressed client.
The client is ‘instructed’ by the bank to sign the letter appointing the reporting accountants so that the banker can look us in the eye and say ‘your client made the request for the investigation’.
Because this practice has been going on for many years, we small practitioners have grudgingly learnt to live with this action as a fact of life.
I have recently been made aware that there is a new dimension to this behaviour. A potential client who had decided to change auditors to ourselves was advised by his principal supplier ‘we will carry on supporting you (credits/loans/etc) provided that you use one of the names on our list’.
The supplier was an overseas company, and the list was eight firms of British accountants, either the top five or leading group A firms. I believe this list is the same as that used by the banks.
The profession is heading dangerously towards acting like the world of football where the wealthiest of our colleagues are able to call the shots. Where is the incentive for the provincial firm to encourage its clients to expand, if the large institutions encourage them to appoint other firms?
Is the institute looking after the small member or is it prepared just to let him fade away? The position can only get worse bearing in mind the current bout of mergers.
I wonder if the new Competition Act (1 March 2000) will help?
Name and address supplied
All talk and no users How does the ASB reconcile its ever-increasing standards with Britain’s disenchantment with profit (according to the MORI)?
Surely, Sir David Tweedy wanted to make the accounting statements more meaningful to users. Well, he does not appear to have had much luck with the public, the politicians and the media. Even the analysts appear to rely on the old measures.
And Brussels wants us to use the international standards …
Mike Frampton (email@example.com)
Wood that it were true I suspect that Mr Galliano (‘Letters’, 4 February) can’t see the ‘Wood’ for the ‘Banner’. I recall my brother worked for them just pre-Deloittes takeover, and the name then was Harmood-Banner and not Harmwood-Banner. As I am going back to circa 1969, it is of course possible my memory is playing tricks on me.
Naval J Heeramaneck, FCA NJHCo, Surbiton
Railtrack: making a virtue out a vice My wife is a tax accountant who reads Accountancy Age, and I have just seen an article, dated 4 February, on Railtrack (‘Red signal for the gravy train’). Apart from the financial irregularity of the whole rail privatisation exercise, one point about Railtrack seems not to have been asked.
If one sees advertisements for Railtrack, or hears their representatives speaking in public, they talk a lot about ‘investment in the system’ – meaning replacing track layouts and painting stations.
However, most of us, including engineers such as myself, would regard this as normal repairs and maintenance.
I’m told, though, that the tax treatment of ‘investment’ (capital expenditure) and ‘repairs and maintenance’ are quite different, and that the latter gets no allowances.
Has anyone told the tax inspectors, or whoever Railtrack’s accountants are?
Or is the whole advertising campaign being conducted under false pretences?
GNG Tingey MSc Eng Walthamstow, London E17