Government review of audit under scrutiny
The government's review of audit and accounting post Enron and WorldCom has come under pressure from both Tories and Labour over concerns about auditor independence.
Trade minister Melanie Johnson, joint chair of the review, told parliament: ‘We are currently exploring questions in relation to audit firm rotation, more frequent rotation of partners and the supply of non-audit services to audit clients.’
Replying during a questions and answers session on Department of Trade and Industry issues, she agreed that some of the problems may turn out to be more a matter of outright fraud, but it was important regulators identified the changes needed including any that involve accounting standards.
She was under pressure from Tories like shadow trade minister Nigel Waterson, to produce ‘a calm, measured response rather than a rush to place unnecessary extra burdens on business’, and Labour MPs like Morley & Rothwell’s Colin Challen, who insisted: ‘We would have higher accountancy standards if there were a complete separation of accountancy services from consultancy services.’
Challen asked: ‘How can accountancy firms advise the government on PFI but participate at the same time in consortiums that are making bids for those projects?’
‘We then get advice from other firms, such as Arthur Andersen, which seems to be the only advice yet available on the value for money of those bids.
‘Does she agree there should be complete separation?’
Johnson replied: ‘I agree with my friend that the relationships between auditors and clients can be too cosy and there is a need to demonstrate independence.
‘There is a risk of having too many conflicts of interest.’
She added: ‘The UK’s principles-based regime is a more effective basis for accounting than the rules-based system of the US.’
The government review will report at the end of the month.