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Letter: Make audits consumer-friendly

Austin Mitchell
Saturday 16 September 1995 00:02 BST
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From Mr Austin Mitchell, MP

Sir: Your article on auditor liability ("Few plaudits for the official audits", 13 September) raised important questions about government policy. The Government has ignored pleas for effective audits and has failed to prosecute any firm criticised in DTI inspectors' reports or implicated in mega scandals. Instead, it is considering rewarding the firms by protecting them from lawsuits. Such anti-consumer legislation will do nothing to improve the quality of audits and does nothing for the long-suffering audit consumer.

There is no case for any liability concessions to audit firms. Unlike the United States, following the Companies Act 1989, auditors can already form limited liability companies. We put that in at their behest, yet in their efforts to avoid exposure of their affairs, no major firm has so far chosen to do so.

Most of the lawsuits the firms refer to are by one accountancy firm against another, usually in their capacity as receivers when they stand to receive huge fees based upon any recovery. Ordinary shareholders rarely get any damages from negligent auditors and the Caparo judgement does not favour any individual investor.

Any liability concessions to auditors will further reduce the incentive to do good audits. Company directors regard audits as a statutory nuisance and want to complete the formalities cheaply and without fuss. With an eye on their profits, fees and market share, auditing firms rarely blow the this whistle on corporate crooks. If, by hook or crook, a company continued to survive, nobody would find out about poor audits. Only corporate collapse highlights poor audits. The probability of lawsuits keeps some firms in check. Audits should be about liability and probity. Any dilution makes the whole process a sham.

It is time to end the accountants' statutory monopoly of external audits and invite banks, pension funds, financial institutions and others to enter the field. The consumer rights revolution has passed auditing by. Buying an auditing can of worms gives no rights to audit consumers. The law must favour the individual consumer who must also be able to bring lawsuits and class action to secure redress, the limit of which will always depend on circumstances. So, the Government must redress the current balance. Failure to do so will not persuade people to invest in companies or have any confidence in audits.

Yours sincerely,

Austin Mitchell

MP for Great Grimsby (Lab)

House of Commons

London, SW1

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