"Unrealistic" for Northern Rock auditor to have raised alarm

It was “unrealistic” for auditors to raise the alarm about Northern Rock’s
finances in the lead up to the crisis, a leading city academic said at an
investigation into audit competition.

Michael Power, professor of accounting at the London School of Economics,
said it was unfair to expect an audit partner to raise concerns about bank
finances, at a House of Lords inquiry into audit competition yesterday.

Power told the committee it was almost “unthinkable” for a single audit
partner to raise issue directly with regulators.

“If you are saying one lone partner should have blown the whistle on Northern
Rock, I think that is unrealistic,” he said.

“If there is any contact with the regulator it is from the top of the [audit]
firm…It would be a very brave partner which would unilaterally take those
actions.”

Power was speaking on day one of the Economic Affairs Committee inquiry into
the competition issue. Auditors have come under pressure from the Financial
Services Authority to speak up about concerns they have about their clients.

The inquiry also heard from Vivien Beattie, professor of accounting at the
University of Glasgow, who said one way to promote competition in the top-heavy
accoutning industry might be to encourage companies to retain their non-Big Four
auditor as they grow.

“These small companies, If they could be encouraged to stick with a non Big
Four firm you would get a more organic solution. [Audit firms] would grow as
their [clients] grew,” she said.

Further reading:

Lords
to probe audit market

Economic
Affairs Committee