Auditors must endure a good going-over

The accusations are not only from lay-people. Some academics have asked what
the auditors were doing and some politicians have been vociferous in their
accusations.

Privately there are those in the institutes who acknowledge that the audit of
banks and financial institutions investing in the complex financial products
will need some kind of review. Do auditors really understand the products they
were auditing? Is the education of auditors keeping pace with developments in
the markets?

Any official review, sometime from now, is more likely to look at the
framework for auditing financial institutions rather than examine the
culpability of individual audit firms. Having said that we cannot rule it out.

What we have learned is that lawyers are already dealing with enquiries from
worried clients concerned about the relationship with their auditors. What they
want is advice on what they should do with documents going back and forth with
the auditor. The lawyers are saying don’t do anything that might prejudice your
opportunities for litigation. It’s what you might expect, but it’s still
frightening.

What it suggests is that, rightly or wrongly, someone will launch an action
against an auditor in relation to the credit crunch. More generally, the
profession will be pushed to explain itself, in some cases on an individual
basis.

What we see is the first hint that there may be another trying time on the
horizon for auditors. Once again the argument will have to be made that while
auditors should carry their share of responsibility, it is difficult to see why
they should underwrite the entirety of the world’s markets.

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