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.