Auditors attacked on relocation

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The Independent Online


MPs, accountancy firms and City figures yesterday criticised Price Waterhouse and Ernst & Young over their plans for relocating offshore to gain protection against negligence claims.

Adrian Martin, managing partner of BDO Stoy Hayward, which itself faces large suits over the collapses of Polly Peck and Astra, said: "It looks very tacky."

The issue has come to a head following a record pounds 105m award for negligence on Wednesday against auditors Binder Hamlyn, whose 150 partners now face ruin. PW and Ernst will announce next week that they are registering in Jersey instead of the mainland. Under British law partners are allowed to limit their liability only if they take no part in running the business.

Matthew Carrington, Conservative member of the influential Treasury and Civil Service Select Committee, said: "I think it is appalling... Auditors should be kept accountable, but the law should be changed where necessary to give them reasonable protection so they can remain in a properly regulated environment."

Prem Sikka, professor of accountancy at the University of East London, attacked PW and Ernst for their move offshore:"We need more cases like the Binder judgment. It will bring home to accountancy firms that what they do affects people. The law should be changed so that firms owe a responsibility to shareholders of the companies they audit as well."

Other accountancy firms said that registering in somewhere like the Channel Islands, The Isle of Man or Liechtenstein might look as if they were running away. The Institute of Chartered Accountants said it had no problem with such moves because its audit regulations would still apply if they were auditing UK companies. It was not unethical and it was up to firms to do what they thought was best, said technical director Bruce Picking, adding "they probably feel they are being driven to it out of necessity." The Institute was continuing to press for legal reform and would be using the Binder judgement as added evidence in its discussions with the DTI.

Meanwhile, it emerged that the various moves aimed at giving protection against claims might prompt clients to seek cuts in audit fees. Simon Rees, founding partner of Rees Pollock, a niche firm operating in the City, said that much of the current fees reflected the fact that auditors would be fully liable if something went wrong. If that changed clients would seek reductions.

Of the big six, Cooper & Lybrand and Arthur Andersen say they are continuing to look at all the options, but are not about to make announcements.