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November 23, 2010

Auditors not to blame for financial crisis: Big Four

The Big Four accounting firms have defended the role of auditors in the run up to the financial crisis after a grilling by the House of Lords Economic Affairs Committee.

Leaders of Deloitte, Ernst & Young, KPMG and PwC argued it was not their job to sound the alarm in the lead-up to the near collapse of the banking sector.

The committee questioned why banks were signed off as a ‘going concern’ by the auditors in the first place.

According to Deloitte senior partner and chief executive John Connolly, an auditor’s decision to sign off a bank’s accounts as a ‘going concern’ was based on the knowledge that there would be support from the government if this was not the case.

“I can only say that had we concluded that there was not going to be support, then a different audit opinion would have been given,” Connolly said.

“I find it absolutely astonishing,” Lord Lawson retorted. “You noticed [the banks] were on very thin ice but you were completely relaxed about it because you knew the taxpayer would support them.”

KPMG senior partner John Griffith-Jones defended the position that an auditor’s primary role is to “count the score at the end of the accounting period” and not to make an assessment of the risk of the business.

Connolly noted that independent inspectors into the crisis found the qualities of the bank audits by the Big Four were of a “high” quality.

“At no point have we had to restate the financial statements, which would have been required if they had been incorrect,” Connolly added.

The committee’s probe into the role of bank auditors in the run up to the crisis is part of a wider inquiry into audit market concentration, which is expected to be concluded by the end of the year.

So far the committee has heard from academics, regulators, professional accountancy bodies and the mid-tier accounting firms.


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