UK Auditors Questioned Over Role In Combatting Fraud

The rash of corporate accounting scandals to hit the U.K. in recent years has spawned a new debate over auditors’ roles in identifying fraud.

Reports in Financial Times on Sunday (Feb. 3) said Grant Thornton Chief Executive David Dunckley’s recent remarks when speaking with a House of Commons committee have been met with stark criticism and a new discussion over auditors’ roles in identifying and preventing corporate fraud.

Dunckley told MPs last week that auditors “are not looking for fraud” as politicians questioned him over Grant Thornton’s role as auditor of Patisserie Valerie, which went into administration last month after the discovery of a $52 million fraud scheme at the cafe chain.

In response to Dunckley’s remarks, one MP quickly rebutted, “What is the point of audit in the first place?” Now, Financial Times said, other recent corporate fraud scandals, including Carillion and BHS, have sparked new conversations about what an auditor should do if evidence of fraud is found.

“If auditors pick up a scent of something wrong, they need to follow the bloody trail,” the publication wrote.

MPs appeared to agree during Dunckley’s meeting, but Dunckley reiterated that it is not the auditor’s duty to identify any issues of fraud.

“There has to be an acceptance that if there is a sophisticated fraud happening, the auditor may never see it,” he said last week. “The audit is not designed to look for fraud.”

Also at the meeting were BDO Head of Audit and Assurance Scott Knight, and Mazars U.K. Head of Quality and Risk Jac Berry. Both disagreed with Dunckley.

“You look for material frauds,” Knight told MPs. “If they are sizable and material, then I think you do have to look for them. In a large organization, there will be petty frauds, and that is not something an audit is designed to wheedle out. But if they are material to the financial statements and of relevance to the shareholders, then you should be expected to find them.”

Amid the string of corporate finance scandals, the U.K. government is also examining the nation’s auditing industry overall, dominated by four top firms: PwC, Deloitte, EY and KPMG. Policymakers launched a new inquiry into the market this year to explore a range of issues, including a lack of competition. The probe adds to the existing investigation by the Competition and Markets Authority (CMA), as well as a separate review of the Financial Reporting Council and its own ability to address accounting scandals.