End Big Five compensation show
So after all the talk of a settlement in the Barings case, it seems auditor PricewaterhouseCoopers and liquidator Ernst & Young will be going to court over allegations of professional negligence.
Some will relish the battle. But the episode, and other similar clashes, do make one wonder whether this is the best way to proceed, and whether the big beasts of the auditing jungle aren’t taking a bit of a long-term risk in the system.
It’s not an encouraging sight to see the four or five firms, which between them audit the vast bulk of the world’s big enterprises, bickering among themselves in this way.
Sensible people will know that, however careful internal disciplines and quality control are, things go wrong. Generally it is not edifying and it doesn’t make for confidence to see firm A suing firm B which is suing firm C which, in turn, is suing firm A – all at the same time.
This happens because the firms, or at least their insurers, are pretty well the only people left around with any money when the client collapses ? and stakeholders, like creditors and depositors, lose out.
Might there be a better way? One dramatic approach would be to go for a no-fault system under which some independent organisation would rate damage only and charge this to a pool maintained and funded by participating audit firms. This is very broadly the direction in which the NHS may be going, though a degree of capping may come in here.
The new disciplinary apparatus under Lord Borrie would, of course, continue and lead separately to a fault assessment.
Or, less dramatically, the substance of the present system could be maintained with Lord Borrie investigating standards and calculating penalties, again to be charged directly to the pool. Contributions to the pool, however, would be based on a fault track record.
Either sort of system would be the logical development of the advent of limited liability partnerships and might, in the first place, be restricted to these to maintain what’s left of partners’ professional risk.
No doubt other systems could be devised. But the profession, the big firms and the government should take this issue seriously by looking for a way of combining an avoidance of unhelpful court cases that damage the profession with a maintenance and improvement of personal standards.
- Sir Peter Kemp is a former senior civil servant and an FCA.
