'Public has lost faith in auditors'

Sarah Marks12 April 2012

TRADE and Industry Secretary Patricia Hewitt said today the public has lost faith in the independence of auditors. Ms Hewitt told an audience at Cambridge University: 'Confidence has been lost in the independence of auditors as a result of Enron.'

She suggested that executive directors could lose the power to choose company auditors in the wake of the Enron and WorldCom scandals. The Government is considering a range of moves to prevent accountancy scandals occurring in Britain and Hewitt will spell out the latest thinking.

'Maybe we should look at the way auditors are appointed. Current checks and balances just aren't enough. Maybe we should give an enhanced role to the audit committee,' she said.

This could mean that non-executive directors have the power to appoint auditing firms over and above the people who actually run the company on a day-to-day basis.

She also put forward ideas that are believed to be gaining popularity among the Government - swapping auditors every few years and banning accountancy firms from undertaking legal or consultancy work.

She said: 'One way to tackle this (confidence loss) may be through the rotation of audit firms or audit partners. We should also look at the extent to which the audit firm should be also able to supply non-audit services.'

Speaking at the Centre for Corporate and Commercial Law, Hewitt showed her support for global accounting standards that are opposed by many US businesses. The UK has long held that its principle-based auditing standards as opposed to the rule-based system applied in the United States is better at preventing fraud.

The Government's audit review team is expected to say in its report, due this month, that relations between auditors and company bosses are too strong and form one of the major weaknesses in UK accounting practices.

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