Rumours of the death of debate surrounding the audit expectations gap have been somewhat exaggerated. From Barings to SSL, Equitable Life to Independent Insurance, financial instability has thrust the issue very much to the fore once again. And, not for the first time, fingers have swiftly been pointed at the auditors.
The current way of thinking is to find the deepest pockets for redress – not necessarily to determine absolute responsibility. When companies are in trouble, auditors and their fat wallets have always made for easy prey. Sometimes deservedly so – as in the case of Coopers & Lybrand, which famously ‘lost the plot’ in its audit of the Maxwell empire.
Proposals from former Whitehall mandarin Sir Peter Kemp in the 2 August issue of Accountancy Age made for interesting reading. Sir Peter suggested an independent body complement the profession’s disciplinary arm and rate ‘damage’. This would be charged to a pool maintained and funded by participating audit firms. This, he said, would spare the profession many costly and unnecessary law suits.
Clearly, a better system can be conceived, but whatever emerges, the status quo is unacceptable. With recession looming, the question of liability in corporate failure will only get more attention.
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