UK's toothless auditing watchdog

AS the US launches a probe into dozens of companies in the widening Enron scandal, Britain faces embarrassment over the regulation of its auditors. In America, the row over fraudulent accounts apparently missed by major accountancy firms has helped wipe $1,500bn (£1,000bn) off Wall Street share values in the past six months.

But as the spotlight falls on British accountants KPMG - one of the oldest and largest accounting practices in the world - for its role as auditor of copier giant Xerox, a tough new British accountancy regulator promised in 1997 has yet to employ a single member of staff or to start work. Dogged by bureaucratic delays, the Investigations and Discipline Board - which was supposed to begin its watchdog duties in January 2000 - is farcically still just an empty floor in a swish London office block.

KPMG, the latest household name to admit to questionable figures in its accounts, will be desperate to avoid the fate of Arthur Andersen, auditor to fraud-riddled energy group Enron and WorldCom, the disgraced telecoms company. Like KPMG, Andersen was among the top six accountancy firms in the world, but Andersen is now in a state of disintegration. It has been shattered by an exodus of clients and by civil and criminal proceedings launched by those who believe it was negligent or worse in signing Enron and WorldCom accounts instead of blowing the whistle on their financial manoeuvring.

KPMG's nightmare is that the Xerox affair will prompt a similar stampede of clients keen to avoid any cloud over their own names.

John Healey, economic secretary to the Treasury, will press an international finance ministers' summit on Saturday to move swiftly to create what Chancellor Gordon Brown has called a 'new world financial architecture' in the wake of the 'crisis of trust' that has pulverised corporate America.

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