Company Law: Auditors Obligations

Tom Young

I find it interesting to note that loan swaps between banks or financial institutions can go unnoticed by some of the larger Audit houses in the city and indeed on the block e.g., E&Y, in the context of the Anglo Irish Bank loan swapping.

During the WorldCom and Enron days a couple of things happened:

1. Sarbox (Sarbanes Oxley) was brought in and although lessed or diluted recently, put manners on certain companies who were publicly quoted [yet we have a banker defrauding billions in the states again];

2. Executives who mislead were charged and jailed; and

3. Arthur Anderson ceased to exist morphing into Accenture and KPMG.

I am not suggesting illegality in the transactions above, albeit they potentially dishonest. I am suggesting a grave lack of accuracy and accountability in the process of audit.

Is it accurate to suggest that sending in inexperienced audit execs to audit in larger companies facilitates hiding offences, an does not allow partner's - who ultimately sign-off these audited accounts to review and find these difficulties?

Where is the credibility and legal accountability in the audit process?

The torts here being, breach of trust, deceit and conspiracy. The criminal law should be looked at in this area also in the context of prosecutions for corporates who either negligently or actually perpetrate frauds on the shareholders/company.

Tom

Tom Young

From the Principle Act ...

[GA] Qualifications for appointment as auditor.
162.—(1) A person shall not be qualified for appointment as auditor of a company unless—
[GA]
( a ) he is a member of a body of accountants for the time being recognised for the purposes of this paragraph by the Minister; or
[GA]
( b ) he is for the time being authorised by the Minister to be so appointed either as having obtained similar qualifications otherwise than from such a body or as having obtained adequate knowledge and experience prior to the operative date in the course of his employment by a member of a body of accountants recognised for the purposes of paragraph (a) or as having before the operative date practised in the State as an accountant.
[GA]
(2) If an auditor is convicted of a criminal offence arising out of or connected with the performance of his duties or his conduct as an auditor, he shall not be qualified for appointment as auditor of a company without the permission of the court.
[GA]
(3) None of the following persons shall be qualified for appointment as auditor of a company—
[GA]
( a ) an officer or servant of the company;
[GA]
( b ) except where the company is a private company, a person who is a partner of or in the employment of an officer or servant of the company;
[GA]
( c ) a body corporate.
[GA]
References in this subsection to an officer or servant shall be construed as not including references to an auditor.
[GA]
(4) A person shall also not be qualified for appointment as auditor of a company if he is, by virtue of subsection (3), disqualified for appointment as auditor of any other body corporate which is that company's subsidiary or holding company or a subsidiary of that company's holding company, or would be so disqualified if the body corporate were a company.
[GA]
(5) Any person who acts as auditor of a company when disqualified under this section shall be liable to a fine not exceeding £100.
[GA]
(6) This section shall not apply to the Comptroller and Auditor General.

From the 1990 CA (Amendment) Act:

Companies (Amendment) Act, 1990


[GA] Criminal liability of persons concerned for fraudulent trading of company.
34.—(1) If any person is knowingly a party to the carrying on of the business of the company with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, that person shall be guilty of an offence.
[GA]
(2) Any person who is convicted of an offence under this section shall be liable—
[GA]
( a ) on summary conviction, to imprisonment for a term not exceeding 12 months or to a fine not exceeding £1,000 or to both, or
[GA]
( b ) on conviction on indictment, to imprisonment for a term not exceeding 7 years or to a fine not exceeding £50,000 or to both.