No Ritchie, just no

The key paragraph here is 1.2. It says that the company is solvent because of funding to be supplied to it by its parent company.

You can be quite sure that the auditors, who were PWC, will have required that support to be quite robustly documented and that they will have tested the reasonableness of the claim made. So they will, for example (I hope) have tested the ability of the parent company to support BHS Limited with the cash it needed and will have ensured that this support should persist at least until the next audit report was likely to be due.

No, that’s not what that says at all. What it does say is that Taveta *could* support BHS. Something which is obviously true.

You are actually allowed to put a subsidiary into administration without the parent company offering said support. Not often done, true, as people look very askance at those who do it. But it can indeed be done.

This, then, gives rise to some very serious questions. First, the duty of the auditors is to the shareholders in general, and not the current ones in particular. In that case did they know a sale was pending? It seems very likely that they did. And did they ensure that the support of Taveta was transferrable on sale in that case? If not then the basis of preparation for the accounts was meaningless.

No, you’re wandering off into irrelevancy there.

6 thoughts on “No Ritchie, just no”

  1. Why do auditors seem to make such a poor job of spotting fraud? One factor, says Richard Murphy, a partner at accountant Murphy Deeks Nolan, is a massive expectation gap about what auditing can and can’t do. Despite unshakeable general assumptions to the contrary, he says, auditing (like accounting in general) is a subjective, not objective, discipline representing an opinion, not a certainty.

    ‘Put five accountants in a room with the raw figures,’ says Murphy, ‘and they’ll come up with five different profit figures, all legitimate. Accountants and companies understand that, but regulators, users of accounts and governments want it to be black and white.’

    The basic function of an audit as currently practised is to confirm that reported transactions actually took place, not to root out dishonesty. Current thinking in corporate governance puts increasing responsibility for the latter on a company’s directors.

    ‘Deep down, every auditor knows he is on a hiding to nothing,’ says Murphy. ‘Every time he signs off a “true and fair view”, he knows that another view could be perfectly possible.’

    http://www.theguardian.com/money/2000/jan/16/workandcareers.madeleinebunting1

  2. Jonathan Abbott

    Apparently if I sell some of my share portfolio (No doubt saying that already makes me a Neoliberal Running Dog in Murphy’s world) The auditors of the firms whose shares I sold still owe me a duty of care – this is extraordinary and adds a whole new dimension to company law. Is there no beginning to the man’s knowledge.

    The answer is he doesn’t have a bloody clue – he just sounds off, almost at random, casting aspersions, sowing fear and distrust, all the while rabbiting on about how his reforms would be in ‘society’s’ best interests, which is what makes him one of the most evil men in Britain. Various people, out of self-interest, ignorance or malice, look to the guy as an ‘authority’ on tax and economics – even though he has repeatedly displayed his complete ignorance of both areas. A complete blowhard – fortunately his influence seems to be dwindling as repeated gaffes and his overweening arrogance and inability to play with others begin to marginalise him. There must be no let up to the ‘Ragging on Ritchie’ however – a cornered beast is always the most dangerous type of animal.

  3. Not true – auditors frequently point out that their duty is solely to the current shareholders. The current shareholders pay the auditors and the auditors therefore have a contractual duty to those persons and only those persons.
    Murphy pretends to be an accountant andsays things like that??

  4. Life is too short to read Richie.. but if this is about a parent company guarantee to get a ‘going concern’ audit opinion, then is it worth pointing out that the guarantee would, in any case, only cover liabilities over the next 12 months? So, for example, long term shop leases and £500m pension deficits would be out of scope.

  5. Couple of points occurred to me

    First thing I was told in audit course at college was that auditors have no responsibility to detect fraud, there’s even a well known legal case to that effect.

    He seems to be confusing the idea that there are multiple users of accounting statements which includes potential investors, employees and others which can lead to a general (professional) duty and specific duty of care in the audit.

    Once again he rails agaisnt auditors, seems to be something he has a bee in his bonnet about, to the extent that one wonders when fellow professionals will start to feel he accusing them or the profession of being in disrepute

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