Hodge’s horse trading really makes no sense

She is standing by plans to introduce a new offence of ‘knowingly or
recklessly’ signing off misleading company accounts. It is a step that makes
auditors nervous. The battle to have the key paragraph changed in the company
law reform bill has rumbled through the Lords and now it is in the Commons.

Hodge seems unconcerned. She warned that this was the quid pro quo for
allowing auditors to negotiate proportionate liabilities. But MPs are already
warning the minister to think long and hard about the inclusion of the new
penalty. They would prefer alternative words such as ‘dishonestly or

The interesting thing about this measure is Hodge’s assertion that it is a
proposal that balances the concession of having proportionate liability. This is
an odd bit of horse trading and makes for poor policy making. Surely the way you
make law is to consider a proposal on its own merits. In this instance
government appears to have created an artificial attachment between liability
and reckless auditors.

Was it necessary? Accountants in the Commons appear to imply that something
is needed by asking for a compromise on the wording. But Hodge’s statement seems
to point to a political deal. You can only have proportionate liability if you
let us throw some auditors in prison. Or to put it another way, you can’t have
something unless we take something too, or it won’t look good.

If pro auditor MPs are to head this off, they will have a fight on their
hands. Whereas debate in the Lords was measured there are those in the Commons
who will make sure that there is plenty of scare mongering around UK audit. The
argument is now set for its climactic final stages.

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