§ Mr. Austin MitchellTo ask the Secretary of State for Trade and Industry if he will introduce legislation to require auditors of public limited companies to report material fraud discovered by them to his Department.
§ Mr. RedwoodAll auditors should apply the guidance in the auditing guideline issued in February 1990 on the auditor's responsibility in relation to fraud, other irregularities and errors. If an auditor does not apply the guidance in any particular case, he must be prepared to explain why he has failed to do so. The guideline makes it clear that where the auditor is aware of matters of concern and does not have confidence that they will be properly dealt with by management, he should, if he considers that disclosure should be made in the public interest, disclose the matters to the appropriate authorities, which may include my Department.
§ Mr. Austin MitchellTo ask the Secretary of State for Trade and Industry if he will list the statutory provisions relating to duties on an auditor to detect and report material fraud.
§ Mr. RedwoodCase law has established that where auditors suspect significant fraud or other serious misconduct, the public interest in disclosing their430W suspicions to the appropriate authorities outweighs any obligation of confidence they owe unless they act maliciously. There is, however, no general legal duty to disclose. Legislation passed in 1986–87 applying to the regulated sectors—banks, building societies, insurance and investment businesses—has clearly removed any legal obstacle there was to auditors reporting relevant matters to the regulators. So far as insurance and investment businesses are concerned, the legislation gives the Secretary of State power, if it appears to him that auditors are not subject to satisfactory rules or guidance issued by a professional body specifying when they should notify him of relevant matters, to make rules imposing a duty on auditors to disclose in the circumstances he specifies. The Treasury has broadly similar powers in respect of auditors of banks and building societies as regards provision of information to the Bank of England and the Building Societies Commission. So far we have not thought it necessary to make rules in place of the professional bodies' guidance but we keep the matter under review. In some cases in the public sector the auditor has a statutory responsibility to report certain matters arising from the audit, including significant fraud or other irregularities, to a third party such as a sponsoring department.