Auditors 'complacent' in financial crisis, say Lords

A man passes an advertisement in the Canary Wharf financial district in London, 16 February 2011
Image caption The Lords say the auditors made the financial crisis worse

A House of Lords committee has accused auditors of leading banks and other companies of "complacency" and "dereliction of duty" in the run-up to the financial crisis.

The Lords Economic Affairs Committee examined the role of auditors KPMG, Deloitte, Ernst & Young and PWC.

It said the four dominate the market, auditing 99% of the UK's top companies.

It called for the Office of Fair Trading to carry out a detailed investigation of the market.

The committee said the breakdown of dialogue between bank auditors and regulators made the financial crisis worse.

"Auditors were either unaware of the mounting dangers in the banks or, if they were aware, failed to alert the supervisory authority," the committee's report stated.

"The paucity of meetings between bank auditors and the supervisor was a dereliction of duty by both auditors and regulators."

The BBC's chief economics correspondent, Hugh Pym, describes the report as a comprehensive and hard-hitting indictment.

The Institute of Chartered Accountants in England and Wales (ICAEW) said it did not accept the committee's view that auditors contributed to the severity of the financial crisis.

"They did the job that they were expected to do - provide an audit opinion on banks' financial statements," said ICAEW chief executive Michael Izza.

However, he acknowledged that auditing had to "evolve to continue to meet the needs of the market and society".

"For example, the Bank of England and the Financial Services Authority working with the profession has developed a draft code of practice for two-way dialogue between auditors and supervisors.

"Putting this dialogue on a statutory footing is one of the key recommendations in the House of Lords report and is a great example of supervisors and the profession working together to make constructive improvements."

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