But they keep screwing it up. Things are so bad that the number of truly global firms has been reduced to four, and one of those – Ernst & Young – is currently banned from taking on new work in the US. It is also being sued for billions in the UK because it was auditor to Equitable Life.
Auditors don’t have the money to pay legal bills of this size and their solution – before another of them gets forced out of business like Arthur Andersen after the Enron debacle – is to ask for their legal liability to be capped so the sky will no longer be the limit when they get something wrong. The response from customers, led by Morley Fund Management, is that they should be given no concessions until they put their house in order.
Auditors have a classic PR problem. They think they perform pretty well, but the standards they define for themselves are not the standards which others have for them. Public expectations are beyond what auditors are geared to deliver – and this is tearing them apart.
Auditors have always sought to blur what they do and for who they do it. They are supposed to report to the owner of the business that the management is trustworthy and the accounts are fair. In fact, the firms have used their proximity to management to sell tax, consultancy and other services at considerable profit to themselves.
Auditors are mounting a quiet campaign among press and politicians, playing on the fear that there might soon be no auditors left given the way litigation is going. But it could backfire if customers suggest we get rid of the audit altogether because it fails to catch villains. Penalties for directors caught having done wrong would be a greater deterrent and give the customers the comfort they want.