Interesting article by Dr. Prem Sikka of the University of Essex. Many of you are familiar with him as the man behind the digest of news about the accounting profession at the Association for Accountancy and Business Affairs.
Holding audits to account
UK companies spend nearly £1.5bn each year on audits, but these offer little protection to stakeholders. It is time to replace them.
By Prem Sikka
UK companies spend nearly £1.5bn each year on audits of their financial statements. Yet episodes like Hollinger, Farepak, Barings, Ahold, Equitable Life, MG Rover, Parmalat, Enron and others suggest that company audits offer little protection to stakeholders. It’s time to replace them.
A common understanding is that auditors are independent of the company and its directors and thus in a position to make impartial judgements. This is one of the biggest hoaxes of all time. Company auditors are hired, fired and remunerated by directors though their decisions are rubber-stamped by shareholders. Many auditors also sell tax avoidance and a variety of consultancy services to client companies. This gives them a direct interest in corporate transactions and they have rarely exposed any shady dealings. Despite having statutory access to almost all records, officers and employees of the company, auditors deny obligations to detect and report fraud. Their files are not available to any stakeholder to see what they knew…