What we do know is that all these businesses were audited by some of the biggest auditing firms, and in every case they gave an unqualified opinion that proved not to be correct when the firm failed.
In my view, three factors contribute to audit failures. One is that auditors sometimes use audits as loss-leaders. Another is that they can get too close to management so conflicts of interest are glossed over.
A third is that shareholders are allowed no information about the company-auditor relationship, even though proper audits might in some cases have prevented loss of pensions, bank deposits, investment and jobs.
Such fiascos should result in legal action against auditors - the only safeguard currently available. Yet the Government has failed to take any, and even rewards the firms implicated with lucrative contracts. Former ministers work for the biggest auditing firms while auditors' trade associations, masquerading as professional accountancy bodies, are closely identified with those big firms. Despite adverse DTI reports and the implication of the big firms in scandals, none of their partners has ever been disqualified from public practice.
In a perfect world these sorts of scandal should produce some self-examination. The firms that enjoy a statutory monopoly of the external auditing function should improve their standards and make themselves accountable. Better audits are the only real safeguard.
Yet instead of setting out to ensure them, the big firms and the Institute of Chartered Accountants in England & Wales (ICAEW), which acts as their front-man, are lobbying Government for anti-consumer legislation for their own benefit. Their aim is to protect negligent auditors from the consequences of their own failures by a 'cap' on liability. Under these proposals, auditors would be able to fix the extent of their liability.
Company costs would rise since all directors would have to take out compulsory liability insurance. Yet the threat of the one sanction - the legal one - against auditors would be removed.
The auditing industry claims to be an unfair victim of lawsuits because it has 'deep pockets'. In fact the firms do not publish any audited information about their affairs, though it is clear that when they give possible liabilities as a proportion of fee income they exaggerate it by giving only audit fee income where they should include all the services sold on the back of audit. The real litigation threat is in the United States, not here where the law as it stands offers all too little protection to shareholders.
Auditors do not owe a 'duty of care' to individual shareholders or creditors but to the company. In effect, only directors can bring a lawsuit against negligent auditors. Moreover, how do we find out when auditors are negligent? When a company goes bust the case is clear, but by then the company is dead. Seeking restitution through the courts is not cheap. Only the wealthy and persistent can go. When they get there, judges attach considerable importance to the profession's guidelines, invariably prepared by the 'insiders' to protect auditors with little regard to the interest of the investing public.
Buy a can of soup and we have consumer rights. Buy a can of auditing worms and there are none. DTI inspectors' reports regularly show that audits have been faulty. No firm has ever returned the audit fee. Individual shareholders may vote on the appointment and remuneration of auditors. They have no recourse against auditors, no matter how negligent. Most lawsuits against auditors are by other auditing firms acting as receivers.
There is no economic, moral or ethical reason for any further concessions to the auditing industry. The whole of it should be brought under the control of an independent regulator who can clean up the profession. Corporate shareholders pay auditors and auditors should owe them a 'duty of care'.
Shareholders should be able to bring actions against auditors. Anyone hiring a solicitor can examine his/her working papers. Why shouldn't shareholders be able to examine auditors' working papers to assess audit effort and quality? They should also have sight of the audit tenders.
Perhaps the current auditing industry is simply incapable of rising to the challenge of modern, complex businesses. In that case, we need alternative structures to protect the people from fraudsters. What we don't need is to absolve the only police force we've got from its responsibilities to do better and better work.
Austin Mitchell is the Labour MP for Great Grimsby.