Whitehall in auditing crackdown

THE Government is expected to crack down on auditors becoming company finance directors in the wake of the Enron scandal. It is understood that a Whitehall-backed taskforce looking into the repercussions of the Enron affair will recommend that accountants should not be able to move into the commercial world without a lengthy 'cooling-off period'.

The taskforce is also considering whether to force companies to rotate their auditors at least every seven years as well as boosting the powers of non-executive audit committees, giving them the authority to appoint and sack external accountants.

The Enron scandal brought to light the dangers of close links between auditors and the companies whose books they are supposed to be checking. A senior partner in Andersen, auditor to the collapsed energy trader, became a director of Enron shortly before the disclosure of massive off-balance sheet scams brought the US company to its knees.

Finance directors of several leading British companies have moved across in similar fashion. Earlier this year, shareholders at tour operator Airtours questioned the role of new finance director David Jardine, a former Andersen partner, after it emerged that Andersen charged Airtours £1.2m for auditing the books and £6m for consultancy work.

A senior source involved in the taskforce said: 'The Government is determined to try to prevent an Enron happening here. Clearly you can't stop corrupt managements pulling the wool over the eyes of their non-executive directors, but you can try to ensure there are defence mechanisms in place.'

At present, audit managers must be rotated at least every seven years, but there are no rules on changing the audit company. One problem is that mergers between the big accountancy firms, and the near-collapse of Andersen, means there are now only four substantial audit firms capable of handling most international companies.

Large audit firms, such as PricewaterhouseCoopers or KPMG, will typically carry out an audit for less than cost in the hope of building a longterm relationship with a company and the prospect of more lucrative consultancy work. This has raised fears of a conflict of interest that could compromise audit standards.

BRITISH companies face having to report accounts every quarter under new European proposals. The tough new rules, part of the EC's Regular Reporting Directive, could come into force in time for the 2004 financial year.

The move has emerged just as UK companies with American operations have been officially released from filing quarterly accounts. However, most UK-based international firms such as Diageo, British Airways and Unilever are under pressure from their investors to continue filing frequent reports.