The potential of a throwaway election promise
Audit and insolvency practices might be in for significant change, if a throwaway line in the Tory Party manifesto is put into practice by the new government.
The ignorant may believe the overused message of “Get Brexit done” will be the life-changer that everyone will take away from the landslide result in the general election.
It is astonishing how many millions are seduced by hype. But in addition to some quite bold tax freezing proposals, the Conservative Party manifesto also contained promises that could have an even more dramatic impact on our profession.
Hidden away were a handful of words committing the next government to reform auditing and insolvency.
The threatening headline news was not supported by any kind of explanation or elaboration, leaving readers to imagine for themselves what the chosen leader of this process might have in mind.
The likelihood is that they will follow some of the recommendations made in the soon-to-be-published report on auditing by Sir Donald Brydon. No doubt it will appear in this column before too long.
There can be few in the accountancy trade, the FRC, or the media addicts amongst the general public, who would not accept that a review or overhaul of the audit industry is long overdue.
The conveyor belt of disasters just seems to roll on and on. The latest story reveals that the FRC has fined Grant Thornton (GT) and its unfortunate lead partner the best part of £0.5 million as a result of its inability to audit an unnamed company adequately.
As readers know, this is the latest in a long line of audit failures by the firm – with its work on Patisserie Valerie crowning as its glory. It's also worth mentioning that almost all of GT’s major rivals have had similar embarrassments in the not too distant past.
Although no finger has yet been pointed at the company’s auditors, around the time the disciplinary fine was reported, the world discovered that the accounts of M & C Saatchi had been overstated to such a degree that a stream of management resignations has commenced.
The misstated figures were presumably material and apparently covered the years from 2014 to date. Although they apparently asked some pertinent questions before recently resigning, the auditors must expect to face some awkward questions in the not too distant future.
It is hard to imagine that a Conservative government would seek to nationalise this sector, but the powers that be could seek to bring in a completely new monitoring and penalty regime with real teeth. And it is about time.
After all, the consequence of poor auditing is often a massive loss to stakeholders. This might be terrible news for employees who lose their jobs and pensions, and not to mention, small shareholders. Quite often, vast numbers suffer as a result of the diminution of their pension fund assets, or the need for the government to dig out the relevant bank/travel company etc.
I am no expert on insolvency, but then neither are civil servants or ministers of state, for the most part. However, the problem is likely to be a little different.
The general criticism that firms face is an uncanny knack of maximising their own fees at the expense of the poor creditors who are likely to receive little more than a penny or two in the pound.
Once again, this kind of behaviour gives the general public a jaded and very negative view of what should be an honourable trade.
Time will tell as to whether the new government gets auditing and insolvency done. But until then, it might not be such a bad idea for those at the sharp end to clean up their acts before they are forced to do so.