liability of auditors for not giving a true picture of the banks.

[JoeB]

Are the auditors, who didn't do their job correctly in relation to giving a true and accurate picture of the state of the banks subject to possible legal action?


Why has this not happened? Apparently the auditors were remiss, in several respects, and they have legal obligations not to be amiss.

It would seem that investors who invested in bankrupt companies, based on the glowing reports of the auditors, now have recourse to sue the auditors.

Class action suit anyone?


edited to add.
The auditors could have no complaints about this, and su-ing them is the correct course of action, to prevent people from saying 'well there's never any enforcement, so we can ignore our legal duties'.

 

[Brendan Burgess]

Hi Joe

it's a tough one. The auditors report that the accounts show a "true and fair view" of the state of affairs.

You would have to argue that the provisions for loan losses were inadequate as of the time of the auditor's report. I don't think that this would succeed. Estimating provisions is a very difficult job. There are accounting conventions and I would imagine that the banks adhered to those accounting conventions.

It is the directors' responsibilities to make those provisions. The Financial Regulator would have been aware of them as well. The auditors would have had to form a different view of the property market.

One area which might be worth pursuing would be the inadequacy of the legal documentation for the loans. The auditors should have picked this up. They would probably have reported it to the Board. If they had done so, they probably would have met their responsibilities.

Having said all that, I challenged the auditors of Irish Nationwide at various AGMs. I even wrote to them with examples of huge errors in the accounting systems. I formed the view that the accounts would have to make provisions for these errors. I never got a reply.

I would expect that the auditors probably did bring certain issues to the attention of the board in a management letter, but they did not consider them serious enough to qualify the report.

I would love to see them asked questions on these issues in a legal action, but I don't think it will happen.

Brendan

 

[smiley]

Joe...i posted the following in January 2009.

In the wake of the financial shenanigans at Anglo Irish i thought id investigate the exact role an external auditor plays in a company.

Question: How much reliance can one put on an auditors report??

Answer: NONE.

According to Robert Leach (FCCA FIPPM AcertCM)

"An auditors report is an opinion on part of another accountant's opinion, and nothing more.
The auditors report PROVIDES NO GUARANTEE THAT THE ACCOUNTS ARE CORRECT, that the business is trading legally or indeed at all, or THAT THERE IS NO MASSIVE FRAUD GOING ON.

The auditors report is really a curiosity. In fact anybody can prepare company accounts.
The directors can appoint the village idiot if they wish, but the auditors must be professionally qualified accountants.

An auditor states that the accounts are correct and fair and they comply with the Companies act and that is all. If the company is involved in crooked dealings and has been ripped off, it will still get a clean audit report, provided those dealings and rip-offs are properly accounted for!

Warren Buffett has always said one should take audit reports with a big pinch of salt.

""He also complained that many other companies were overstating earnings, and he expressed puzzlement that their auditors let them get away with it.""

Moral of story: Dont take the audit report seriously!

 

[Gekko]

It's understandable that people want to see heads on sticks, but it's ridiculous to blame the auditors when it's the directors (both executive and non executive) who are to blame.

The directors are responsible for the preparation to a company's financial statements. The auditors just give an opinion as to whether the financial statements give a true and fair view of the company's position. Because of materiality, they can't review every item. And if the directors are up to no good, it can be difficult to detect that.

Notwithstanding the above, there's too cosy a relationship between the banks and partners in the Big 4. And non executive directors in Ireland are largely a joke. Instead of boosting a company's corporate governance with independent and unique viewpoints, they tend to be stooges drawn from the same pool of accountants and solicitors.

 

[bullworth]

The Auditors are infinitely more responsible than the taxpayer who is shouldering the burden.

 

[Jim2007]

The Auditors are infinitely more responsible than the taxpayer who is shouldering the burden.

The auditor's responsibility is to the shareholders at the time the report is presented, not the taxpayers, not potential future investors, nor anyone else for that matter.

When it comes to the report itself, is a professional opinion and nothing else. And while hindsight is a wonderful thing, it is the conditions that existed at the time that the opinion was expressed that count. In order to reach the kind of opinion that we now thing he should have reached at the time, the auditor would have to have concluded that everyone else involved in the mortgage industry, buyers, estate agents, solicitors, bank managers and economists where crazy and he alone was the only sane person in the room! A rather fanciful expectation in my opinion.

Bottom line you'd need to have been a shareholder at the time the report was presented and have evidence of some kind of gross misconduct on the part of the auditor before you'd have a realistic chance of being able to take a case against the auditors.

Jim.

 

[Monksfield]

I am disgusted at the performance of almost every group of professionals associated with the financial/property bubble.That most definitely includes auditors.

However as other posters have pointed out the very notion of an audit giving any great assurance does not conform to reality or the legal position.I agree with Brendan that the Achilles heel of the bank auditors is probably the failure to identify the (in many cases chronic) defects in the security held ; whatever restrictions there were in relation to provisioning for future loan losses an audit should highlight if procedures for taking security were not being followed.

Also,it was undoubtedly true that relations were too cosy - arising from the entire debacle should be a requirement that the auditor of a public company must change every 5 years.

 

[JoeB]

Well, the rules are probably sufficient if followed.


For example, should the auditors note conflicts of interest? If senior members of the auditing company socialise with senior members of the audited company, .. would that be legal?, or should info like that, a potential conflict of interest, be noted?


I understand that Ireland is small, and if such a rule was passed then maybe all auditors would be disqualified from auditing certain companies.

 

[flattea2]

Its the Directors who sign off on the financial accounts, not the auditors.

All audit opinions state that the work has been done based on the Directors providing all relevant information. If the Directors have not furnished this or are hiding something, then the auditor is not responsible.