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Letters: Are audit standards fit for purpose?

1 Dec 08

Your correspondent John Topping (Letters, November 2008) questions the role of auditors in valuing bank assets, perhaps with justification. I would, for now, like to give them the bene?t of the doubt for surely, post-Enron, they have at least complied with generally acceptable standards

Comment by Sir David Tweedie in the same issue (page 17) tends to suggest that the standards themselves may not have been up to the task and if that is the case, who can blame the foot-soldiers for getting it wrong?

Prime responsibility for good governance, however, lies with the executives of an organisation and current standards derive from codification following previous but much smaller debacles in areas such as mis-selling, recruitment of appropriately skilled executives, risk identification and management including internal audit and inappropriate and potentially corrupting incentives.

There is therefore, also a questionmark over the effectiveness of regulation and regulators. But of themselves, rules achieve little unless undergirded by fundamental integrity. We have reached a stage where bankers do not trust each other and so it is little wonder that the essential trust of stakeholders on whom recovery depends no longer exists.

Our President, in the July issue, expressed hope for the same high standards to apply throughout the profession and certainly gave me pride in our new young members who had said they did not want to work for companies that are perceived as greedy or acting against the best interests of society.

By contrast I was recently much saddened to see one of our leading banker members described as a “megalomaniac”, a term I would have hoped might never have been applied to any member of a Scottish profession.

If indeed there has been “megalomania” it would seem some supposedly good men in the banking and accounting professions have done nothing. If there has been culpability we owe it to the principled young people joining our professions, and to society, to demonstrate our standards are not only words or hopes by ensuring that those who sought and received the plaudits also receive due sanction.

The restoration of trust and the very future of our professions depend on it.

Findlay Turner CA, Saltcoats, Ayrshire

Principles may help avoid next crisis

ICAS has established a position in communicating its strong views that principles should be the guiding force in our accounts preparation and standards. Arguably the pre-emininence of a rules-based culture has contributed to the current situation – whereby balance sheets are revealed to lack the substance apparently shown by accounting in accordance with rules.

At an ICAS event in London, Professor Tweedie, in communicating on the complexity of IAS 39, said it could be set out in two paragraphs. ‘Paragraph 1 – market to market’, ‘Paragraph 2 – re-read paragraph1’.

In the context of developing a SORP, he once said to me that the accounts should reflect the economic reality of the situation. How times change!

I have to say I support our chief executive’s stance and the more ICAS can do to restore the pre-eminence of principles over rules, the more likely we are able to avoid a repeat of recent events.

Michael Yuille CA, director of finance,University of Liverpool

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