Audit firms in threat to pull out

Top accountants have threatened to withdraw from college audit work because proposed new rules would make work too risky and could lose them millions of pounds, they say.

The Further Education Funding Council drew-up a new code of practice, following concern about the low level of audit in colleges. But accountants say it is far too onerous and prescriptive and it may not be worth their while continuing to audit the sector.

The main objection is that, under the code, auditors would have to accept unlimited liability for their internal audit work. According to Robson Rhodes, a leading accountancy firm in FE, liability could amount to Pounds 1 million, when fees would only be around Pounds 20,000.

They have told the FEFC: "Despite the Council's proposed lighter touch regime and college's requests for reducing the audit burden, the proposed code, if anything, increases that audit burden. The Council will be aware that all major firms are currently reassessing their client base and are resigning from those appointments where the commercial risks of acting for the client are considered to be unacceptably high. The council should recognise that if the risks of acting for the colleges become disproportionate to the rewards, there is a risk that major firms will withdraw from the sector."

They are backed by the Institute of Chartered Accountants who have said: "We are strongly opposed, not because we want to avoid responsibility for sub-standard practice, but because auditors are increasingly seen as insurance when anything goes wrong."

Coopers and Lybrand, which has a 30 per cent market share, has already withdrawn from at least 20 colleges because the fees are too low compared to the volume of work required. KPMG is taking a similar stance.

Pauline Tiller, chief auditor at the FEFC said: "We are trying to work out if this is a real threat or a hollow one. Many accountancy firms were on the working party we set up and this issue was not raised at all. We are consulting the Institute and the firms but I think there is an element of them threatening to cry wolf."

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