Auditing Faces Post-Enron Shake-Up
Trade and Industry Secretary Patricia Hewitt yesterday confirmed that the Government is to review business practices on financial reporting and auditing after the collapse of Enron.
A parallel independent inquiry will look into the role of non-executive directors, who have recently faced criticism over their failure to 'blow the whistle' on problems at companies where they enjoy lucrative seats on the board.
Questions have been raised about the effectiveness of existing auditing procedures after Enron's auditors Andersen failed to raise the alarm over massive financial irregularities at the company.
Critics of current arrangements complain that a conflict of interest is created where, increasingly, auditors hold accountancy or consultancy contracts at the same firms which they audit. There has also been controversy over whether Enron's non-executive directors - who include former Conservative Minister Lord Wakeham - fulfilled their responsibilities to take management to task over dubious business practices.
Non-executives, who work part-time and frequently hold posts on several boards, are supposed to represent share-holders' interests. But critics complain that the large fees they enjoy make them ineffective as watchdogs.
Ms Hewitt told a business audience at the Mansion House in the City of London: 'We have all been shocked at the speed and scale of the dramatic collapse of Enron. …