Audit shake-up is 'a big fudge'

The scandal surrounding Enron triggered the review

New measures for the UK's accountancy profession, aimed at preventing Enron-style financial scandals, have been announced by the government.

There is nothing 'cosy' about these arrangements at all

Patricia Hewitt, Trade & Industry Secretary

The proposals include a new, single regulator governing accounting standards, and limits on how long auditors can work on the accounts of one company.

But Prem Sikka, professor of accountancy at the University of Essex, told BBC Radio 4's Today programme the measures were "a big fudge".

His comments came after the government decided not to ban accountancy firms from doing other work, such as giving taxation advice, for clients whose accounts they also audit.

Trade & Industry Secretary Patricia Hewitt denied that the new measures gave the big accountancy firms an easy ride.

Case-by-case approach

The proposals follow a year-long review which was set up in the wake of the accounting scandals unearthed at Enron and WorldCom in the US.

I don't think the investing public as a whole will have much confidence in company accounts or their auditors

Professor Prem Sikka, University of Essex

A ban on auditors doing non-audit work was one option being considered, but Ms Hewitt said it would be up to clients to decide what services they bought from accountants.

"The audit committee of each listed company should be under a requirement to set a policy for the company for what non-audit services they would buy from the company doing the audit work," she said.

"I think it's a better way to do that, by looking at the particular position of each company, rather than trying to do a one-size-fits-all set of regulations."

Ms Hewitt denied that the measures were too weak, and said the main accountancy firms would have to "sit up and take notice" of the proposals.

"There is nothing 'cosy' about these arrangements at all," she added.

'No reform at all'

But Professor Sikka said the proposals were insufficient, and dismissed arguments that the UK system required fewer changes because the country had not suffered an Enron-style collapse.

No regulatory system, however stringent, can provide against the consequences of human greed, folly or corruption

Tim Yeo, Shadow trade & industry secretary

"We have obviously not had the same size scandals because we are a smaller economy, but if you look at the newspapers there has been a steady stream of accounting problems," he said.

He added that the major accountancy firms would be happy with the measures which were "basically no reform at all".

"I don't think the investing public as a whole will have much confidence in company accounts or their auditors."

Reforms

Ms Hewitt unveiled the full range of reforms in the House of Commons on Wednesday.

Senior auditors will not be allowed to spend more than five years working on a single company's books.

And new voluntary rules will stop partners and senior employees of audit firms moving to jobs with the companies they have audited for two years.

A single regulator governing accounting and auditing standards will also be created.

Corporate governance

Ms Hewitt said that the code on corporate governance of listed companies would be strengthened.

It will state that half of board members and the chairman should be independent - echoing the recommendations of the Higgs report last week.

Following another Higgs recommendation, the separation of the roles of chairman and chief executive is to be reinforced.

Ms Hewitt also said that the City watchdog, the Financial Services Authority, would get new powers to identify companies with "high risk" accounting standards for investigation.

The shadow trade and industry secretary Tim Yeo said he broadly welcomed the new measures.

But he added: "No regulatory system, however stringent, can provide against the consequences of human greed, folly or corruption."