This morning's Lowdown features an interesting piece from the Financial Times about the expectations of an auditor. Elsewhere, HSBC's CFO has some robust opinions on IFRS 9.
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How far should auditors be expected to go?
The FT posed an interesting question this morning, asking how far auditors should be expected to go in their efforts to uncover bad behaviour.
With KPMG under investigation for its audit of Rolls Royce, the FT said that the “obtain reasonable assurance” rules auditors are bound by leaves considerable scope for interpretation.
Discussing the auditors’ view at odds with investors, the article says: “[T]here is a wide gap between auditors’ own idea of how far their responsibilities stretch and the expectations of investors and the general public. The creditors of failed companies are increasingly inclined to hold their auditors responsible.
“The accountancy firms are predictably reluctant to see these questions tested in court… This is regrettable. Greater clarity is needed on the scope of auditors’ responsibilities — and on the costs this may entail.”
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Mitie writes down profits after review
Mitie has discovered “less conservative” accounting techniques used on customer contracts have caused a balance sheet writedown of between £40m and £50m.
According to the FT (subscription required), Mitie in a review with KPMG identified a number of “material errors” in its financial reporting that may require a restatement of its 2015-16 accounts, in a move that would be likely to bolster its 2016-17 results. Mitie’s shares though rose 5.2% as its trading performance was in line with expectations.
Despite the £50m hit to the company’s profit, Mitie chief executive Phil Bentley said Mitie remains a strong and successful business. “Whilst these accounting adjustments affect our reported profits, they do not affect the underlying strength of our business,” he said.
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HSBC CFO slams accounting standards
HSBC’s chief financial officer didn’t hold back his opinion about the IRFS accounting standards. According to the Evening Standard, Iain MacKay called next year’s accounting rules a “monumental pain in the arse”.
The challenges from the new accounting rules that is caused MacKay such a headache means banks have to report “expected losses” rather than “incurred losses”.
MacKay’s outspoken outburst somewhat overshadowed HSBC’s first quarter results, where shares rose 3%.
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About Richard Hattersley
Richard is AccountingWEB's practice correspondent. If you have any comments or suggestions for us get in touch.