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Don't pass the buck to auditors

Perhaps we should be thanking Andersens and Enron for helping to draw so much national press attention to the FTSE-100 audit fees survey we published in last month's Financial Director. Both The Times and Financial Times looked at the subject in detail, with both interested in our finding that Big Five auditors earn several times as much in consultancy work as they do by checking the books.

And so we had a phonecall from a Radio 4 producer who hoped we might provide a soundbite along the lines of “All auditors are bastards and they should be strung up from the nearest lamppost” (well, maybe I exaggerate a little) – but we could not oblige her. As far as we’re concerned, we can hardly tell FDs that, when a company’s finances turn out to be shambolic, it’s all the auditor’s fault.

Moreover, we don’t agree with suggestions by BusinessWeek, which should have known better, for measures such as compulsory rotation of auditors every few years or even an outright ban on auditors doing non-audit work for clients. Company boards, not least the FD and audit committee, ought to be big enough and smart enough to consider these issues without a rulebook telling them who their statutory auditors should be and what work they should do. As it is, most annual reports make explicit mention of such considerations, pointing out that audit committees consider carefully whether the likes of tax or M&A work should go to the auditors, with the rest going out to tender.

Finally, it seems to us to be a complete cop-out on the part of US CFOs and their auditors to argue that “the rules” allow the kind of off-balance sheet financing that eventually choked Enron to death. Under US GAAP, auditors sign a certificate that says the financial statements “present fairly, in all material respects, the financial position” of the company.

As we told The Times, you can’t prevent intelligent people occasionally doing stupid things – but directors and their auditors should ensure that they look at each year’s books with fresh eyes and do not allow the audit to become a kick-the-tyres MOT certificate.

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