Memorandum submitted by Professional Oversight
Board
I note that the Business, Enterprise and Regulatory
Reform Committee is to hold a one-off evidence session on the
performance of Companies House. In 2006 this Board published a
report dealing with how accountants support the needs of small
and medium-sized companies and their stakeholders. I believe some
of our findings from that report may be of relevance to the Committee.
The Professional Oversight Board provides independent
oversight of the regulation of accountants and actuaries by their
respective professional bodies. We provide statutory oversight
of the regulation of the auditing profession by the recognised
supervisory and qualifying bodies, and, through the Audit Inspection
Unit, we monitor the quality of the auditing function in relation
to economically significant entities.
I am pleased to enclose a copy of our report
for your information and I highlight below the key relevant findings.
Our research found that a sizeable minority
of annual accounts filed at Companies House appeared, in 2005-06,
to include significant technical issues, material computational
errors or other evidence of a lack of care in preparation that,
taken together, could undermine the usefulness of the accounts.
I should emphasise that we would not expect
Companies House to carry out anything other than rudimentary checks
on sets of accounts before they are accepted. Rather we would
hope that where sets of accounts show the involvement of a qualified
auditor or other professional accountant, users would be aware
of the accountants' duties under the profession's code of ethics.
These include the requirement not to be associated with reports
where the accountant believes the information to contain a materially
false or misleading statement or information that had been furnished
recklessly, and the requirement to act diligently in accordance
with applicable technical and professional standards when providing
professional services. However various factors currently limit
the extent to which this can occur:
(i) Users of accounts currently have a limited
understanding of the role of professional accountants and their
professional obligations (page 39). This has recently been accentuated
by the introduction of electronic filing as the involvement of
a professional accountant cannot be included in sets of accounts
filed electronically.
(ii) There were, unfortunately, quality issues
in the work of too many professional accountants. The professional
bodies are working to remedy this situation (pages 25-26).
(iii) It is possible for accounts to show the
involvement of a professional accountant dishonestly, although
it would be very difficult to assess how often this happens and
we did not attempt to do so (page 38).
We made recommendations to the professional
accountancy bodies to help address each of these issues. In particular,
we recommended that the bodies develop a report that could be
attached to non-audited accounts to show their members' involvement,
and that the bodies work with Companies House to allow these reports
to be filed electronically. There could then be a facility by
which the involvement of a firm of accountants could be verified.
There would still remain the issue of what should
happen when it is identified that accounts for smaller unaudited
companies have been filed with errors or omissions, given the
costs of investigating such cases.
6 March 2008
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