HL Deb 11 May 1994 vol 554 cc1563-5

2.57 p.m.

Lord Spens asked Her Majesty's Government:

Whether it is in the public interest to maintain a strong and financially viable auditing profession.

Viscount Goschen

My Lords, the Government recognise that an effective auditing profession is crucial to public confidence in company accounts. The vitality of the profession may be judged from the fact that some 18,000 firms of accountants have reached the standard required for registration by the regulatory bodies as statutory company auditors.

Lord Spens

My Lords, before I proceed to my supplementary question I should declare an interest in that, somewhat surprisingly, I am still a Fellow of the Institute of Chartered Accountants. My supplementary question is this: is the Minister aware that the current exposure to legal liability for each of the partners in the top six or seven auditing firms is running at a figure between £7 million and £8 million per partner? Does he agree that a transfer of liability from a limited liability corporation to an unlimited liability partnership is taking place and that Section 310 of the Companies Act 1985 badly needs to be amended to rectify that problem?

Viscount Goschen

My Lords, as the noble Lord, Lord Spens, mentioned, it is suggested by some parties that liability is a threat to effective audit. We do not believe that that is an overriding anxiety. There are others who take a contrary view and therefore we are considering very carefully the proposals which have been put before us.

Lord Clark of Kempston

My Lords, does my noble friend agree that in auditing, as far as public expenditure is concerned—which is the largest spender of money in this country—that the setting up of the National Audit Commission by this Government has been very welcome? Does he further agree that the very fact that the National Audit Commission not only audits but also looks into value for money—which has saved the taxpayer many millions of pounds—is something for which we should congratulate the Government and also thank them for setting up that organisation?

Viscount Goschen

My Lords, I thank my noble friend for his remarks. I entirely agree with him.

Lord Bruce of Donington

My Lords, without passing any comment at all on the six firms to which the noble Lord, Lord Spens, referred, is the Minister aware that there is a very real danger of unreasonable demands being made on those who conduct the profession of auditing? Is he further aware that in the normal course of an audit, in the absence of suspicious circumstances, the auditor is entitled to rely on the explanations given to him by the directors of the company? Does the Minister agree that it is quite unreasonable, in the absence of suspicious circumstances, to require the auditors to go way outside their ambit into suspecting alleged fraud? Does the noble Viscount further agree that it is quite unrealistic that the auditors should be saddled with that responsibility which involves very considerable extra cost and effort which may not have been included in the original tender price of a normal audit?

Viscount Goschen

My Lords, on the question of burdens on auditors, we believe that it is right that those carrying out the important statutory function of auditing the published accounts of limited companies should satisfy a supervisory professional body that their qualifications and practices meet the necessary standard. Of course, we recognise that since the costs of that process are ultimately born by business it should be conducted economically as well as effectively.

Lord Marsh

My Lords, although I agree with everything that the noble Viscount has just said in answer to the noble Lord, Lord Bruce, may I ask him whether he accepts that the rash of major actions, involving many millions of pounds, against a number of major companies must be causing considerable concern about their viability and that, whatever the rights and wrongs of it, that must be a potential threat to the discipline of the audit profession?

Viscount Goschen

My Lords, I note the points raised by the noble Lord. The Government have taken such points on board. To take that to the extreme, the Government recognise that the potential collapse of an auditing firm would be a serious matter for the clients of that firm as well as for the firm itself and perhaps more widely. That is why we are taking the proposals seriously.

Viscount Caldecote

My Lords, does my noble friend agree that too often auditors are so influenced by company managements that they forget their prime responsibility to shareholders?

Viscount Goschen

My Lords, companies benefit when they have the greatest choice of providers of services from which to choose. On the question of independence, accountants with prior knowledge of a company can advise it better on other matters.

Lord Ezra

My Lords, as is clear from the interventions so far, this is a serious issue. I have been the recipient of audits rather than involved in auditing. The noble Viscount said that this is a serious issue and that the Government are considering it. Do the Government intend bringing forward proposals in the next Companies Bill to deal with this question?

Viscount Goschen

My Lords, the position is that representations have been made to the Government. My honourable friend the Parliamentary Under-Secretary of State for Corporate Affairs is considering those proposals. We await definitive written proposals from the various organisations that are pressing for a change.

Lord Peston

My Lords, may I ask the noble Viscount to elucidate on exactly that point? There seems to be a serious conflict of interest between the auditors who want to earn the enormous fees that they earn but who at the moment look as they do not want to carry the responsibilities that go with that—I have in mind the people who are making representations to the department—and the position of directors of companies who feel that they ought to be able to rely on the auditors for a totally honest view of the business. This seems to be a matter that requires the Government, first, not to listen merely to the auditors, but to listen much more widely to representations. Can the noble Viscount assure us that the Government are listening to a much wider group of people? Secondly, following the remarks made by the noble Lord, Lord Ezra, at some point will the Government tell your Lordships what the results of those representations are because this is a matter of the utmost seriousness to British industry?

Viscount Goschen

My Lords, I note the noble Lord's comments. The view that he has expressed has been put to the Government. We recognise the importance of the contrary view and the concerns of shareholders and others who believe that the limitation of auditors' liability would not be in their best interests or in the wider public interest. That is why we will consider both sides of the argument carefully.

Lord Haskel

My Lords, does not the noble Viscount agree that instead of limiting the liability of auditors it might be better to limit the number of auditors? There seem to be an awful lot of them around.

Viscount Goschen

My Lords, the number of auditors shows that there is healthy competition within the profession. That is a good thing for companies and for auditors.