Crunch for Accountants; CITY AND FINANCE

By Brummer, Alex | Daily Mail (London), February 23, 2002 | Go to article overview

Crunch for Accountants; CITY AND FINANCE


Brummer, Alex, Daily Mail (London)


Byline: ALEX BRUMMER

PUBLIC confidence in accountants has taken a huge knock as a result of the Enron collapse.

Self-regulation of the profession has been thrown into doubt and the credibility of corporate accounting put in question.

Scarcely a day passes without some new accounting scare. It had been widely assumed that auditing practices in the Anglo-Saxon economies, with their sophisticated equity markets, was of a high standard and that it would take rogues like Asil Nadir at Polly Peck or Nick Leeson at Barings to run rings around them.

That is now by no means clear.

In the last few weeks, a succession of questions have been asked about large publicly-quoted enterprises, including the drugs group Elan, telecoms concern Cable & Wireless and the world's biggest company General Electric.

There is some concern on the London stock market as to how discount clothing group Matalan does its sums.

As The Accountancy Foundation acknowledges in a new report, 'high-profile corporate failures would indicate that the business community and the general public are less well disposed to the profession'.

They are not the only ones.

Senior financial regulators also have their concerns.

One of the nation's top City policeman was horrified when it was revealed that Cable & Wireless was adding a shine to its revenues by swapping free capacity with other telecoms groups and recognising it as revenue.

This was a reminder of old accounting tricks used by Bernie Cornfeld, the financier behind the great Overseas Investors Services scandal in 1970, when he used the transfer of Arctic oil leases from one company to another to boost assets. No wonder C&W shares have gone into nosedive, falling from a peak 773p to 2041/2p, as investors fear that the cash mountain gained at the time of the sale of Hong Kong Telecom is being burned at too rapid a pace for comfort.

It is useful that some firms of accountants have started to recognise the problems.

Ernst & Young is seeking to restore battered confidence by refusing to review the internal controls of companies for which it conducts the external audit. This removes a conflict of interest.

But the problems are more deep-seated than that. The giant mergers of the auditing firms in the 1990s have created a structural problem. …

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