The Role of External Auditors and International Accounting Bodies in Financial Regulation and Supervision.

Ojo, Marianne (2006): The Role of External Auditors and International Accounting Bodies in Financial Regulation and Supervision. Published in: A Comparative Analysis Between the UK, Germany, Italy and the USA. VDM Verlag October 2008

Abstract

The emergence of powerful financial conglomerates operating at a global level has led to unified supervision of financial services in the UK and Germany. These changes in regulatory structures have a higher potential of better utilisation through the involvement of external auditors. The crucial role played by external auditors in banking regulation and supervision has been highlighted in bank collapses like BCCI and Barings. According to the Basel Core Principles for effective Banking Supervision 1997, an effective banking supervisory system should consist of both “on-site” and “off-site” supervision. Off-site supervision involves the regulator making use of external auditors. On-site work is usually done by the examination staff of the bank supervisory agency or commissioned by supervisors but may be undertaken by external auditors. Following Enron's collapse, debates focussed around why the UK had avoided its Enron. Many argued that it was because the US approach to accounting regulation was rules-based in comparison to the principles-based system of the UK . In addition to adopting an independent standard setting, the International Accounting Standards Board's second principle is aimed at principles as opposed to rules based standards. All public trading companies in the European Union would have to apply new international standards from 2005 in consolidated financial statements ( EC Regulation 1606/2002) and huge efforts are now being made towards global convergence.

• Item Type: MPRA Paper
• Language: English
• Keywords: international; accounting; organisations; external; auditor; financial; supervision
• Subjects: M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing

References

Ayres I and  Braithwaite J (1992) Responsive Regulation : Transcending the Deregulation Debate  ( New York : Oxford Union Press ) 115

Beattie V, .Fearnley S, Brandt R (2001) 'Behind closed doors : What company audit is really about' Institute of Chartered Accountants in England and Wales

Beattie V., Fearnley S. August 2002 'Auditor Independence and Non audit services : A Literature Review' see <http://www.icaew.co.uk/publicassets/00/00/03/64/0000036464.PDF>

Bittlestone R, 'Now for the quake test' , November 2003 Financial Times, ; also see www.metapraxis.com/publications/business/quaketest.html

Caparo v Dickman (1990) 1 All ER 568-608;

Dasgupta K and Whelan N May 2005 'A Strategic Overview of the New Accountancy Regulations' Paper presented at the Institute of Advanced Legal Studies, Russell Square

Dewing P and Russell PO (2005) The Role of Auditors, Reporting Accountants and Skilled Persons in UK Financial Services Supervision Institute of Chartered Accountants of Scotland

“ Enron : The real scandal” Jan 2002 The Economist <http://www.economist.com/displaystory.cfm?story_id=940091> Ferran E (2003) ' Examining the UK's Experience in Adopting the Single Financial Regulator Model' Brooklyn Journal of International Law

FRC Annual Report 2005/2006

Godfrey J. and Langfield-Smith I 1995 'Regulatory Capture in the Globalisation of Accounting Standards' WPG 04-08

Grant P ( 2005 a ) 'Auditors' liability wishes in company law bill' Accountancy Age 17 March Grant P ( 2005 b ) ' Bill could mean jail for innocent auditors' Accountancy Age 2 June Grant P ( 2005 c) 'Auditors to get proportionate liability' Accountancy Age 18 July Grant P (2005 d ) 'A bit of a liability' Accountancy Age 28 July Grant P ( 2005 e )'Investors fear liability cap by the back door ' Accountancy Age 28 July Grant P ( 2005 f ) 'Watchdog urged to lead on liability' Accountancy Age 25 August Grant P (2005 g ) 'Reform means audit fees should fall : minister' Accountancy Age 11 November

Hadjiemmanuil C (1995) “Banking Regulation and the Bank of England ” Lloyds of London Press House of Commons Select Committee on Treasury Minutes of Evidence; 2001 Appendix 8; Memorandum from the Chartered Institute of Public Finance and Accountancy

House of Commons Select Treasury Committee, 2001/2002 Further memorandum submitted by Professor Prem Sikka 'The Institutionalisation of Audit Failures : Some Observations'

House of Commons Select Committee on Treasury; April 2002 Examination of Witnesses : Mr Michael Groom, Mr Peter Wyman, Mr David Bishop, Mr Roger Adams, Mr Bruce Epsley and Mr Richard Mallett

House of Commons , Select Committee on Treasury, June 10 2002 Minutes of Evidence on the inquiry into the arrangements for financial regulation of public limited companies in the United Kingdom Huepkes EHG ( 2005) The External Auditor and the Bank Supervisor : Sherlock Holmes and Doctor Watson? Journal of Banking Regulation, Volume 7 No 1/2 Laffont J and Tirole J (1991) ' The politics of Government Decision Making : A Theory of Regulatory Capture' 106 Quarterly Journal of Economics pp 1089-1127.

Mogg J.F 1995 ' Internal Controls : The EC Response to BCCI' Internal Controls in Banking Edited by Ray Kinsella Oak Tree Press Dublin

Nobes C and Parker R (2006) Comparative International Accounting Seventh Edition

Newsreporters 'The year that was 2005 ' ( 2005) Accountancy Age 15 December

Posner R (1974) 'Theories of economic regulation' 5 Bell Journal of Economics and Management Science pp 335-358 Research Papers (1999) Houses of Parliament Research Paper 99/68 'Financial Services and Markets Bill' [ Bill 121 of 1998-99]

Review of the Regulatory Regime of the Accountancy Profession, Report to the Secretary of State for Trade and Industry, see   www.dti.gov.uk/cld/post_enron.htm.

Scott DH (1994) The Regulation and Supervision of Domestic Financial Conglomerates (Policy Research Working Paper No 1329 The World Bank Financial Sector Development Department August )

Smith R ( 2003) Audit Committees Combined Code of Governance : A Report and Proposed Guidance by an FRC-appointed group chaired by Sir Robert Smith FRC, London Singh D 2003 'The role of third parties in banking regulation and supervision' Journal of International Banking Regulation Volume 4 No 3

SAS 120 Revised : Consideration of Law and Regulations SAS 620 Revised : The Auditor's Right and Duty to report to regulators in the financial sector

Stigler G (1971) ' The theory of economic regulation' 2 Bell Journal of Economics and Management Science pp 3-21 The Role of External Auditors in Financial Services Supervision, 2000 Report by PricewaterhouseCoopers Financial Services Regulatory Consulting Group

Tomlinson H. 2004 'Brussels seeks to tighten audit rules' The Guardian March Treasury Committee Report No 1 1996 Barings Bank and International Regulation Treasury Committee Volume 1 Session 1996-1997 First Report Barings Bank and International Regulation

Vieten HR (1997) Banking Regulation in Britain and Germany compared : capital ratios, external audit