Barry Gardiner, who has a particular interest in insurance, said auditors face ‘a huge conflict of interest because auditing is a loss-maker and to make a profit they have to sell consulting work’.
KMPG was auditor at Independent from 1986 until the insurer collapsed last month. The ICAEW is currently mulling whether to ask the accountants’ Joint Disciplinary Scheme to investigate the firm’s role or conduct an internal probe.
In a scathing attack of its handling of the crisis and the role of the Financial Services Authority, Gardiner urged the government to examine the results of the institute’s inquiry and called for a similar investigation by the Institute of Actuaries.
Gardiner told Westminster Hall, the second chamber of the Commons, that he had earlier asked officials at City watchdog the FSA how they measured the solvency of a company. According to the MP for Brent North, they said they relied on information from management and the auditors about the underlying liquidity of a company.
He responded to this by accusing the FSA of ‘complacency’.
‘Can it be true,’ he said, ‘that we pay £232m for the FSA to rely on the auditors?’
Gardiner said a wide-ranging inquiry into the collapse of Independent and a full examination of the role played by the Financial Services Authority was required.
Treasury minister Ruth Kelly answered by saying it would be inappropriate while the Serious Fraud Office inquiry was ongoing.
But Gardiner was scornful when he said the answer was ‘what I anticipated because I know she would have been advised by civil servants to keep quiet’.
Independent appointed liquidators last month following its decision to suspend the writing of new business the previous week.
Initial concerns over the state of the insurer arose in May when external actuaries from Watson Wyatt found large claims had not been entered into the insurer’s accounting system.
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