Fears for auditors soon to be over
So the lobbyists appear to have won. The government looks set to backtrack on proposals to criminalise auditors who ‘knowingly or recklessly’ sign off an audit.
The battle to reverse this particular part of the company law reform bill has
been long and arduous, with peers in the House of Lords taking the lead in
battering the government’s argument.
A quick look at the measure’s history shows early indications of a victory
were always on the cards. First, it proposed a prison term of up to seven years
for those found guilty. That was subsequently changed to an unlimited fine. Now
the criminal aspect of the bill appears to be facing the end as well.
The collective sigh of relief was deafening. The fear was always that the
incompetent would find themselves criminalised for bad work, rather than for any
intent to deliberately mislead investors and regulators.
The truth is that there were always plenty of sanctions in place for thought
to be reckless with an audit. An appearance before a disciplinary hearing is as
likely to wreck a career as anything else. And if there really was criminal
intent, well there are plenty of laws in the statute books already to cope.
The fact is that too much legislation is produced in a rush to sooth public
fears, without the necessary thought being done up front. This was a prime
example. The Higgs and Smith reviews carried out for the government in the wake
of the Enron and WorldCom scandals did not find fundamental problems with UK
audit.
Nevertheless some unnecessarily stringent measures have found themselves
tucked into the legislation. Good thing someone’s keeping an eye on the
companies bill.