Did auditors really fuel the economic crisis?

Contractor accountants might be interested to learn that auditors have been accused of “dereliction of duty” for their role in the economic crisis. After an eight month investigation, the House of Lords cited complacency and domination by the Big Four accounting firms as contributory factors to the dereliction.

The Lords committee has now asked the OFT to launch an inquiry and warned that the Competition Commission may need to be summoned.

The investigation found that a lack of communication between auditors and regulators fed the economic crisis. Also under fire were international financial reporting standards which have lowered the standard of audits. The committee said the international framework encouraged box-ticking rather than using professional judgement to form a true and fair opinion.

The professional accounting bodies were not impressed with the House of Lords criticism. The chief executive of the ACCA, Helen Brand, said the Association does not believe the introduction of IFRS has led to a reduction in the quality of audits. Neither does it think the economic crisis should be blamed on accounting issues.

Michael Izza, the chief executive of ICAEW, also rejected the claim that auditors played a part in the financial crisis. He said they did as they were paid to do and provided an audit opinion based on the financial statements of the banks. He did concede that the auditing profession needs to evolve and welcomed the Bank of England and the FSA working in conjunction with the profession to put together a draft code of practice to encourage two-way dialogue.

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