Company Law Reform Bill [HL]

As I explained on the previous group of amendments, because of the importance to all of us of reliable company accounts, we believe that there should be an offence for auditors who knowingly or recklessly produce inaccurate audit reports. As I explained, using the words ““reckless”” and ““misleading”” will catch the behaviours that we want to catch and need not alarm auditors who do not behave improperly. There is already a disciplinary system for practising auditors. Any of the wrongdoing captured by the new offences could be pursued by the Accountancy Investigation and Discipline Board of the Financial Reporting Council. The AIDB and the professional conduct arms of the accountancy institutes might have power to fine accountants and take away their right to practise for a period or for ever. Any auditors who think that they might have to change their behaviour because of the new offences should already be concerned at the possibility of appearing before the AIDB or their professional bodies. We hope that the threat of criminal prosecution adds some level of threat that will act as an extra incentive for those considering behaving improperly. But we accept that there are already punishments available that will be adequate in most cases. We believe that for the most serious cases, because there is a wider social interest in the integrity of accountants, it is appropriate that the option of criminal prosecution should be available. As I have said, we do not think that the existing law is adequate because an auditor who turns a blind eye will be unlikely to be guilty of any existing offence. He would need to be involved in some sort of fraudulent conspiracy for existing law to apply. So we think that there is something which is outside this. I do not think that the appropriate comparison is necessarily with other professional bodies. The question is whether we think that auditors should in some sense be different from directors when looking at accounts. It seems to me that, if anything, it is more important that they should also not act knowingly and recklessly in these circumstances. I am aware that many accountants are concerned about these new offences, and that is entirely understandable; to find that a new risk of criminal prosecution applies to the profession is bound to make one think. But I do not believe that there is anything here to worry the vast majority of auditors. As I explained, it is only the auditor who consciously decided to do something wrong, even if it was to turn a blind eye, who could fall foul of these provisions. The threat of criminal prosecution is a significant but small increase in the sanctions available to deal with auditors who behave improperly. So long as auditors understand that and understand that the new offences will apply only to those who behave improperly, I do not believe there is any reason why these provisions should cause all auditors to carry out more checks and be less willing to exercise judgment.