[BILL 58.] SECOND READING. (Hansard, 2 April 1879)

§ MR. M'LAREN
, in moving that the Bill be now road a second time, said: Sir, as it is half-past 5 o'clock, and we have only a quarter-of-an-hour available, I propose to reserve the discussion of the Bill till the subsequent stage.

MR. ASSHETON GROSS
This is the stage on which we ought to have an explanation of the principle of the Bill.

§ MR. M'LAREN
The right lion. Gentleman has placed me in the somewhat awkward position of having to talk out my own Bill. I was in hopes that I should have been allowed to read the Bill a second time, and that the discussion would be postponed until the next stage. The Bill applies to Scotland only, and to the existing banks in Scotland, and its object is to have an efficient audit established. If Her Majesty's Government, or any hon. Member, can suggest a more efficient way than I propose by this Bill, I shall be very glad to give way to them. All I wish to secure is that there should be an efficient audit of the accounts of the existing banks. Any objections which have been urged against the Bill are confined, I believe, to the machinery of the measure. I have never heard any objection raised, either in Scotland or in this House, to the principle of an efficient audit. In short, though I have heard many suggestions as to the appointment of audi- 242 tors, the powers that ought to be given to auditors, and all sorts of objections of that description, there is no objection to the principle. Under the Companies Act of 1862 powers are given to all the existing banks to comply with the provisions of that Act, and to obtain the benefit of a Charter. Three of the Scotch banks took advantage of that Act of 1862, and in that way obtained the benefit of its provisions. That Act, Sir, contained the most stringent provisions about the audit of accounts; but it was optional on the part of the banks to accept them or not. The City of Glasgow Bank, which recently came to such a sad end, was one of the banks which, in place of adopting and complying with these provisions, utterly disregarded them. There were other two banks in Scotland which applied for the benefit of this Act of 1862, and they also, I am sorry to say, failed to adopt the conditions of the Act respecting an audit. In Schedule B, appended to this Bill, there are a number of extracts from the Companies Act showing that there should be an auditor, showing how he is to be appointed, how he is to be paid, how he is not to be connected with the Company, and containing a great many safeguards about the audit. Then comes paragraph 93 in Schedule B— Every auditor shall have a list delivered to him of all books kept by the Company, and shall at all reasonable times have access to the books and accounts of the Company; he may at the expense of the Company employ accountants or other persons to assist him in investigating such accounts, and he may in relation to such accounts examine the Directors or any other officer of the Company. In that part of the Act relating to accounts it is provided that— A balance-sheet shall be made out every year and laid before the Company in general meeting, and such balance-sheet shall contain a summary of the property and liabilities of the Company, arranged under the heads appearing in the form annexed to this table, or as near thereto as circumstances admit. Then comes this most important of all the provisions— A printed copy of such balance-sheet shall, seven days previous to such meeting, be served on every member in the manner in which notices are hereinafter directed to be served. That provision has never hitherto been adopted or complied with either by the City of Glasgow Bank or the other two. Under Schedule B there are these conditions—that the auditor shall make an 243 efficient audit by examining Directors and books, and employing accountants, and then as to their report— The auditors shall make a report to the members upon the balance-sheet and accounts, and in every such report they shall state whether in their opinion the balance-sheet is a full and fair balance-sheet containing the particulars required by these regulations, and properly drawn up so as to exhibit a true and correct view of the Company's affairs; and in case they have called for explanations or information from the Directors, whether such explanations or information have been given by the Directors, and whether they have been satisfactory; and such report shall be read, together with the report of the Directors, at the ordinary meeting. Now, Sir, if these provisions had been adopted and observed in the case of the City of Glasgow Bank it would have been utterly impossible for the bank to have gone on after the first audit; for no auditor with any regard for his character, no man of ordinary skill as an accountant, could, after he had looked at these accounts of the City of Glasgow Bank and the pretended balance-sheet, have put his name to them. In fact, when the bank got into difficulties an accountant was sent to examine the books, by other banks, in order to see whether it would be safe to assist the Glasgow Bank; and the accountant, in two days' examination, found out that the whole affair was utterly rotten, and reported to the other banks that it was perfectly hopeless to carry it on. Now, the pretext for not carrying these rules into effect, even where they are nominally adopted, is this—and I should like the House to understand it—that while it is required that auditors shall be appointed, there is a proviso that if the directors fail to appoint the shareholders may apply to the Board of Trade, and the Board of Trade may do it. Well, the Directors have not appointed, and the shareholders have not tried to put it in force, and the result is that the whole thing remains in an uncertain state. I hope I have said enough to induce the right hon. Gentleman the Home Secretary and the House to allow this Bill to be read a second time. It may be considered, if the right hon. Gentleman wishes it, as a blank measure, which he may fill up as he likes, if he will allow it to pass the present stage.

MR. ASSHETON CROSS
Sir, looking at the time, it is necessary for me to be as brief as I possibly can, for nothing would induce me to talk out the Bill. What I want to say with regard to this Bill isthis—that, so far as I read the measure, I am afraid it would place a duty upon the auditor which it would be absolutely impossible for him properly to fulfil. Therefore, the effect of an auditor pretending to undertake the duty would be practically to mislead those who might be led to rely on his Report. The auditor, in my opinion, would neither have the power nor the means at hand to carry out the duties imposed on him. That is the observation which I wanted to make upon this matter. If the simple question of principle is to be taken with regard to this Bill, that the accounts of the banks should be audited, to that principle I have no objection whatever; but the audit proposed by this Bill, for the reason I have stated, would be absolutely misleading rather than giving any proper assurance to the shareholders, for it proposes that the auditor should certify in reference to things that can only be known to the Directors—such, for instance, as the nature of the customer's credit. I do not believe you could find in the world an auditor who would undertake to audit a banker's accounts according to the principles of this Bill. I am perfectly certain, if he attempted to do his duty, he would find it impossible to perform it, either legally or properly; consequently, the Bill would be worse than useless. But if the principle of the Bill is merely that there should be audit as far as it can be conveniently made, to that principle I have not the slightest objection.

§ SIR JOSEPH M'KENNA
I object to the principle contained in this Bill; but I do not think it is possible for me to express, in the time I have at my disposal, the objections which I take to it. Its principle is wrong; it is wrong in its details; but I admit it is an effort to reform the law, and that a great reform is required in respect to bank audit. Now, what I believe this Bill would do, if carried into law, would be to render the audits still more imperfect than they are at present. There is a certain good and tried formulary provided by this Act; and if that were adhered to in a business-like and strict 245 manner, I admit that a great improvement would be effected; but we know very well what occurs where there is a certain form which people have to sign—those forms are printed, and people sign them as a matter of course. The whole principle of the Bill is contained in the form of the audit, and the penalty to be applied in case of failure to give that certificate truthfully. Now, it appears to me that the certificate is vague in its form the auditor has to say that he has "carefully examined the above balance-sheet, with the accounts and vouchers relating thereto;" that is to say, the balance-sheet, accounts, and vouchers of the bank which is being reported upon. Could anything be more indefinite? What are the accounts and vouchers relating thereto? The whole question with respect to this bank, which is being reported upon, is whether they have assets; whether what has been returned as assets are really so or not? This, I maintain, it would be impossible for the auditor proposed by this Bill to determine. ["Divide, divide!"] I shall not conclude my observations one moment sooner in consequence of the interjections of the hon. Member. The question this House has to consider is how it can effectuate a real audit, so that persons signing these certificates—