You might also be interested in
Replies (3)
Please login or register to join the discussion.
Such liability would result in nobody being willing to do audits. It is bad management, not bad auditing, that mostly causes company failure, so any auditors' liability should be proportionate.
I agree with @JDBENJAMIN that it is the management of the business (and the industry), that need to bear most responsibility for such failures. I have written before in this column, that this aggressive financial behaviour is not uncommon, and Carillion were very well known among its competitors and former staff for these behaviours. They have to operate on wafer-thin margins, and when they go after growth, to satisfy the markets and their associated personal/board bonus structures, they inevitably take on more risk, often "unbalancing" their portfolio, towards higher-risk opportunities, where virtually everything has to go right, to achieve the tendered profit margins they set for themselves. Often they miss and hope the good contracts support the inevitable bad ones ("portfolio management"!). The government has its own share of the blame to take, in their zeal for VFM contracts, driving pricing ever-lower. Companies like this probably only make 2-3% PBT, and so, when you push people to the wall, this can happen. The company bear's the lion's share of the blame, for sure, but many different stakeholder groups have some blood on their hands.
To blame auditors alone is crazy. But to say they did nothing wrong in all this, is equally as crazy. They need to probe harder, and when audit and consulting fees might be at risk if they were to do so, then we know where the conversation is likely to end up.
Perhaps some comprehensive type of business failure insurance or schemes across the riskier industries might be of some use, in the event of failures, but again, this would likely only (a) raise costs, and (b) provide an easy "disincentive" to all involved, to work hardest for success and survival.
Not an easy one to solve, unfortunately.
You know when you are on a sinking ship and that it's prudent to jump off. Directors and entrepreneurs know when the funds they are drawing in emoluments are above the wealth being generated. All the signs are there - funds become scarce to pay creditors and creditors and other liabilities are mounting.
Culpability lies with the Directors and all bonuses without question should be clawed back by the insolvency agents.
Of course business is a risky business but negligent trading under the umbrella of limited liability must be punished and financially penalised.
Further auditors have a huge responsibility to report the state of the business vis a vis profitability solvency and viability. Surely shareholders investors creditors and government need to be informed so that losses can be mitigated and brought to cessation.
Where an audit firm has failed it should pay back the audit fee and be fined £1,000,000. What's the point of accountancy. It's not to tick boxes and certify accounts results as okay. It's a public responsibility to pronounce the truth and protect a myriad of business participants.
Shame on the accounting profession I say.