O frabjous day!  Ritchie gets all triumphant over the FSA/FRC report on audit, observing that the FSA has pointed the finger at auditors, claiming that the profession had not been sceptical enough about the financial firms it audited in the run up to the banking crisis.

He concludes:

What can I add? Except the likes of Prem Sikka, Dennis Howlett, Francine McKenna and I can all say “we told you so”.

Well, you could add that you are a bunch of dupes.  You've been had.

What else did you think the FSA was going to say?  The FSA is an organisation hanging under a death threat - in the Conservative manifesto was a plan to reform financial services, which was a promise to deliver on their earlier plans to abolish the FSA.  So they're clearly going to say whatever it takes to pin the blame on somebody else.

The fact is - the FSA failed. Dismally.  It was the regulator with responsibility for monitoring and reviewing banks.  And it catastrophically failed to prevent the banks from taking excessive risks.  Nor did it do anything to prevent borrowers from overextending themselves on consumer debt, also within its remit.  And now, pathetically, it is trying to say that if only auditors had told it there was a problem earlier, then it might have spotted that it needed to take action.

That's just not good enough.  As regulator, it should do whatever it takes to ensure that it delivers on its objectives, without any excuses.  If auditors really weren't doing their job, then the FSA should have sought additional information from banks.  We can only conclude that the FSA was clueless and inadequate.

The ICAEW's recent report on bank audits notes:

Dialogue between auditors and banking supervisors was not consistently good enough before the crisis, with the regulator not placing sufficient value on such dialogue.

Sorry, Ritchie, but that doesn't look like auditors failing to take their role seriously to me.  It looks like a shambolic, incompetent regulator.

As if more proof were needed, the EC Green Paper on corporate governance in financial institutions states:

Generally speaking, the recent financial crisis revealed the limits of the existing supervision system: in spite of the availability of certain tools enabling them to intervene in the internal governance of financial institutions, not all supervisory authorities, either at national or European level, were able to carry out effective supervision in an environment of financial innovation and rapid change in the business model of financial institutions.

I'm not surprised that the four stooges have fallen into the trap laid for them by the FSA, but I am disappointed in them.  It's simply a lazy and inadequate explanation to pin the blame solely on auditors.  And it's a hypothesis that simply isn't borne out by the facts.

People who read this post also read:

• You cannot refute this argument
• The lazy anti-auditor rhetoric must stop
• ICAEW report into lessons to be learned from the financial crisis
• Bad news for the audit-bashers
• The Daily Mail and misinformation about VAT

Filed under: Auditing, Institutes with tags conservatives, dennis howlett, european union, francine mckenna, frc, fsa, icaew, idiots, manifestos, prem sikka, richard murphy