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June 15, 2011

Lord Macgregor disappointed by government rejection

Lord MacGregor has hit back at the government’s rejection of proposals to reform the UK audit industry, in particular legislation that requires regular dialogue between auditors and regulators.

An industry expert supported the government’s standpoint, pointing out that enhanced dialogue has already been dealt with through non-legislative initiatives such as the Financial Services Authorities Code of Practice.

The UK House of Lords Economic Affairs Committee chairman described the government’s response as “not good enough”.

A key proposal widely endorsed by the accounting profession is enhanced dialogue between auditors and regulators, such as the Bank of England and Financial Services Authority, but the government does not the need to legislate this.

“Such legislation was a key demand of the committee’s report, which concluded such dialogue is ‘essential’ and ‘of the first importance’,” a disappointed MacGregor said.

“Legislation mandating regular meetings – for example, every quarter – is the only way to ensure this lamentable near-breakdown in communication between bank auditors and regulators is never repeated.”.

PwC head of UK public policy Pauline Wallace said the government did not disagree with enhancing dialogue, “what they disagreed with was the committee’s assumption that you needed more legislation to get there”.

Wallace said that the government has, on the whole, reaffirmed its policy position taken when presenting evidence to the committee earlier in the year.

The government was also critical of some of the views expressed by the committee over the role IFRS played in the global financial crisis. This view is largely consistent with the profession, who contend that IFRS had no impact on the crisis.

MacGregor said the committee was surprised by the government’s views that IFRS had no bearing on auditor prudence.

“The committee’s report concluded that IFRS has limited auditors’ scope to exercise prudent judgment. Auditors’ traditional, prudent scepticism must be promoted, whatever the accounting standards,” he said.

 

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