Something Must Be Done – The Terrible Failure Of Audits And Their Regulation


I think we know what will follow this news. That an auditor has been fined and banned from practice as a result of cocking up an audit – in this case BHS – shows that we must have a new regulatory structure for audit. That’s not, when we come to think about it, quite the lesson to be drawn. Rather, if we’re fining and banning those who do bad stuff, don’t we have an effective regulator already?

A former partner at PwC has been banned from audit work for 15 years and hit with a half a million pound fine over his auditing of BHS’s accounts before it was sold by Sir Philip Green for £1.

Steve Denison was slapped with the fine by the Financial Reporting Council (FRC) in relation to the standard of the collapsed retailer’s audit for the year to Aug 30 2014.

PwC was also hit with a record £10m penalty over the inquiry. This is biggest sanction ­imposed by the accountancy regulator in its history. Both PwC and Mr Denison had their penalties reduced, to £6.5m and £325,000 respectively, after agreeing to settle early.

Murderers get jugged. Does this show that we must reform the police system? Rapists are successfully prosecuted and this shows the CPS needs reform?

Well, actually, that is the argument put forward by a certain quarter:

The Financial Reporting Council (FRC) has fined and reprimanded KPMG and partner William Smith over admitted misconduct relating to their audit of Quindell, the scandal-ridden insurance outsourcing firm.

KPMG are to pay £3.2m, (discounted from £4.5m), while Smith will be fined £84,000, (discounted from £120,000), reduced as they chose to settle the case. KPMG will also cover the FRC’s executive counsel’s costs, which amount to £146,000.

That’s the baddies, about which the Senior Lecturer at Islington Technical College tells us:

Another day.

Another KPMG failing.

Another late FRC report.

Another discounted fine for their friends.

Another reason to get rid of the FRC and create an effective regulator.

D’ye see? That baddies get caught and punished means that wholesale reform is needed.

On the disount part, that’s a standard feature of our justice system at present. Plead guilty, don’t contest charges, get a discount on your sentence. This is true whether you’re up for GBH or robbery. Can’t see any reason at all why the same system shouldn’t apply to professional misconduct cases. The earlier you throw your hands up and agree “It’s a fair cop, Guv'” the greater that discount is. Apparently Richard Murphy is now at war with the basic justice system as well?

There is something important here too, not just glee. For we all know that systems which are reformed take time to be down, become efficient. We’ve got a system which really is catching and punishing the bad guys. Yet wholesale reform is demanded. Why? To make sure that more slip through that new reformed system before it beds down?

But do note that basic point as well. We have here the fact that punishments for bad actions are being handed out. This is being used as proof that punishment of bad actions is not happening. It’s as if jugging the mad axe murderer is used to prove that we’re not investigating, prosecuting nor charging mad axe murderers.

Are we certain that the expansion of the universities was a good idea?

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