28 June 2002
But the regulator for the industry cautioned that 'the cosy relationship' between some auditors and their clients, in the public as well as the private sector, must change.
Professional accountancy bodies reacted with dismay to WorldCom's revelations on June 26 that it falsified profits to the amount of $3.06bn during 2001/02 and that its auditor, Andersen, failed to spot the problem. The news sent the London stock market spiralling downwards.
Colin Reeves, director of the review board of the Accountancy Foundation, which regulates the UK industry's six professional bodies, told Public Finance: 'The UK has far tighter rules regarding accountancy and auditing procedures. Corporate governance arrangements are also more closely observed.'
But he added that the UK system was 'not perfect', and that 'he would not rule out a WorldCom-like collapse in the UK,' because 'some auditing firms enjoy cosy relationships with their clients'.
Reeves said that such relationships were less common in the UK, particularly in the public sector, but did exist. 'That must change, and is likely to as a consequence of ongoing reviews.'
He said that a joint report on accounting practices by the Foundation and the Department of Trade and Industry is due to be published later this summer. 'I would hope it will introduce new guidelines on auditing relationships that will shore up the UK system.'
Andersen's US arm, which already faces bankruptcy after its failure to uncover widespread financial problems at the energy giant Enron, claims WorldCom withheld vital information before its auditor approved the firm's accounts.
In the wake of the Enron scandal, US regulators were lambasted for allowing firms such as Andersen to offer simultaneous audit and non-audit services to clients.
Steve Freer, chief executive of CIPFA, said that the WorldCom revelations were 'very disconcerting news coming so hard on the heels of Enron'.
He added: 'We need to make sure we learn any relevant lessons – for accounting standards, audit arrangements and governance models – from these significant failures in the US. The aim should be to ensure that our approach is as robust and bomb-proof as possible.'
PFjun2002
