Accountants can be trusted
The accountancy industry is set for an overhaul after the collapse of Carillion and BHS dented its reputation.
The CMA is proposing that the parts of accountancy firms that perform audits should be separated, that FTSE 350 firms have two auditors, and that there should be more oversight as to how they are chosen.
Stephen Rawlinson, an analyst at Applied Value, felt that over the last 20 years they’ve had a plethora of companies that have gone bust, and normally the signs were there.
He stated that you could see from the accounting numbers with hindsight where they had been flattered, and accounts are there to present a true and fair view.
He adds that the accountants “are not lying – this isn’t Brexit, this isn’t the Leavers,” but they can “present a flattering picture over quite a long period of time.”
The FRC watchdog has been slow to change the rules, the shareholders have been slow to understand the accounts properly, and the partners of the audit firms haven’t recognised fully their own fiduciary responsibility, nor… have been fined heavily enough where the accounts have been found to be overly flattering.
The collapse of Carillion last year helped raise the issue of the role of auditors at companies.
What are accountants for?
Former Deliotte partner Eric Tracey, of GO Investment Partners, stated that an auditor’s job is to examine the accounts of a company and reassure shareholders the company is not lying,
What does he think of the proposal from the Competition and Markets Authority to break up the big four auditors – PwC, Deliotte, EY and KPMG?
He isn’t sure that it will change behaviour and thinks audit committee reports should outline issues such as why shareholders are “shorting” stocks – that is taking a bet that the share price will fall.
Stephen Clapham, of Behind the Balance Sheet, is blunter: Daft, stupid idea. You make them smaller… you make them less independent.
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