Making the best of a bad job

Making the best of a bad job

By Peter Williams

Auditors need to think carefully about the issues arising from the protestors’ victory in forcing Deloitte & Touche to step down as auditor to Huntingdon Life Sciences. While the DTI may be publicly trying to avoid becoming involved, it must be monitoring the situation with some care.

If auditors can be forced to resign then protestors have a double victory: they cause genuine disruption to the business and they receive more publicity.

It’s unlikely that many auditors will be threatened in the same way as Deloitte, but neither the government nor the auditing profession can assume this is a one-off. Auditors are soft targets and need to put the safety of their staff and partners first. This outweighs arguments over the need to fulfil their public duty.

There are two possible courses of action. First, if no private audit firm wishes to accept the role of auditor then one possible answer is to pave the way for either the Audit Commission or the National Audit Office to fulfil the audit role. There are various problems with such a route: first there is the question over whether either body has the necessary expertise to audit private business and secondly it is also doubtful whether either body’s staff can be better protected than those employed in the private sector.

The other alternative is for company law to be changed so that the secretary of state for trade and industry has the right to grant company auditors complete and continuing anonymity in exceptional circumstances. There is precedence for this in that company directors can be exempted from providing personal details to the company registrar.

Such a solution would not be perfect. There would be issues over how the audit would be conducted. But these could be dealt with: firms are used to dealing with client confidentiality issues.

It is not a particularly attractive option in a free and democratic society.

But then neither is the unwarranted harassment of people carrying out their legitimate business.

  • Peter Williams, a freelance journalist.

Only Westminster can solve it
By Michelle Perry

Huntingdon Life Sciences is causing regulators, the international auditing profession and in particular the UK government a major headache.

Deloitte & Touche, which until last month audited the company’s accounts, was literally forced to sever its link with the controversial chemical and drugs testing company because animal rights’ protestors had begun targeting partners and other staff at its London offices.

If HLS isn’t able to come up with an auditing solution soon it could lose its listing on the OTC Bulletin Board in the US. This in turn could lead to the company losing its financing. The consequences of that would be terminal.

The government has offered help to the company in the past when the market has failed to come up with a solution. We should expect it to do so again, though its options are limited. The issue is a commercial one and the government doesn’t like to interfere too much in such matters.

But only Westminster has the power to make the changes necessary. And its current update of company law does give it the opportunity to make changes, without appearing overly interventionist.

Deloitte’s decision was not a moral judgment. Nor was it simply a commercial matter. What it did – and what it perhaps failed to emphasise – was that it was seeking to protect its partners and staff.

Last month HLS said it was considering rotating auditors on a one-year basis so that the audit firm would only appear in its company accounts some time after it had ended its work. But who’s to say protestors won’t target audit firms even after they have severed their links.

For now it’s about making the best of a bad situation, and it looks like the government is the only one that can do anything constructive.

Precedent says it should. The government has stepped in before to help the company solve its banking and insurance problems.

If HLS is going to find an auditor then ministers should act.

  • Michelle Perry is features editor of Accountancy Age.

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