Byline: ANTHONY HILTON
A STUDENT of financial history, wandering through the dusty archives of the newspaper library in Colindale, might chance upon an article in The Times by Professor of Accounting at Lancaster University, one Eddie Stamp. His theme was that auditors were a bad joke, that the accounts of public companies were a fiction and that investors, bankers, politicians, indeed anyone who relied on those accounts, were being short changed.
His article caused outrage and panic in equal measure because Stamps was in a position to know - he was then the foremost academic in the accounting world, a member of its most inner councils - and his complaints were spot on.
Unfortunately for the accounting profession, struggling to limit the damage to the auditing profession, that article was written in 1967.
What wound him up was the revelation by Arnold, later Lord, Weinstock, the then youthful head of GEC, that a company called AEI, which he had just taken over, was losing a bucket of money. Nothing wrong with that, except that in the long and bitter battle which preceded the takeover, AEI consistently said it was making healthy profits and produced accounts to prove it.
Stamp is no longer with us, but if he were he would be demanding a reprint fee. His catalogue of the profession's shortcomings then bears an uncanny resemblance to what is still wrong with accountancy and auditing today. The collapse in America of Enron, in what is the world's biggest bankruptcy, and the subsequent revelation of profit overstatement through dirty deals done in the company's 692 subsidiaries in the Cayman Islands and 119 in the Turks and Caicos, show that, over a generation, nothing much has changed. Only the scale of the debacle has increased; the accountants' whistles are as silent as ever.
There was even a politician on the board to add to its respectability.
Step forward John (Lord) Wakeham - former Tory chief whip and himself a qualified accountant.
IT was not meant to be like that, of course.
Thirty-five years ago, the Stamp diatribe opened the closed world of the auditor to public view and two of its most powerful figures, Sir Ronald Leach, then head of Peat Marwick, and Sir Henry Benson, boss of its big rival, Coopers, took up the challenge.
They created the accounting standards committee, designed to take away the auditors' judgment and put in rules instead. Similar developments took place in America.
Throughout the 1970s, the 1980s and the 1990s, rule piled on rule, committee followed committee and the accounting standard-setting business, with the international coordination which became necessary as business became more global, provided the excuse for many a fine international junket. But throughout all this rulemaking there was one common thread - companies still went bust while auditors ticked the wrong boxes.
All the firms had their embarrassments - Andersen, the firm at the centre of the Enron row today, was, 30 years ago, the auditor to Bernie Cornfeld's Investors Overseas Services, then the world's biggest offshore fund management business which went under when it was discovered that it was faking its performance figures. Nor will Andersen partners care to be reminded that 20 years ago it was auditor to DeLorean, the motor company set up to provide jobs in Northern Ireland, which went under at least in part because large sums of money were fed into mysterious Swiss bank accounts. …