Contact: Danielle Anthony
Deloitte
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Deloitte today responded to the Department of Trade and Industry’s (DTI) Company Law Reform White Paper.

While welcoming the modernisation of company law, Deloitte’s response voices concern that current proposals for a new offence for auditors may have unintended consequences that could damage capital markets.

Deloitte’s chief executive and senior partner, John Connolly, said: “We do not object to the creation of a new offence for auditors acting dishonestly or fraudulently. The current wording of ‘knowingly or recklessly’ however puts auditors at a high risk of committing the offence by the very nature of their work and without acting dishonestly or giving a false audit opinion.

“Possible adverse consequences of the proposal include increased audit costs, widespread disclaimers and qualified opinions which would have a negative impact on capital markets.”

Deloitte proposes that the offence is redrafted to ensure that:

• auditors are only made criminally liable where they are dishonest or fraudulent, not where they are merely reckless or negligent, or carrying out their work normally;
• the offence should only apply to false audit opinions, not merely incorrect opinions;
• the offence should apply only to individual auditors not auditing firms as a whole.

In its response Deloitte also expresses concerns about the proposal to impose criminal penalties on delegates for breaches of company law. Deloitte believes the proposal could create a moral hazard whereby directors subcontract key functions to outside service providers rather than take responsibility themselves and that directors may deliberately delegate to service providers outside of the reach of UK law.

John Connolly said: “We believe that criminal liability for a company’s failures should be with its directors and not pass to outside service providers. Where it is reasonable for directors to delegate to outside service providers, directors should ensure that they have appropriate controls in place to review and monitor the work done on their behalf.”

Deloitte also highlighted the law relating to dividends and distributions as an area requiring urgent reform. Audit partner Isobel Sharp commented: “The introduction of IFRS is likely to restrict the dividend payments that profitable and solvent companies can make to their owners. While changes to EU rules are needed to make major changes for public companies, we do not see any barriers to stop the Government taking deregulatory action now to remove the present accounts-based regime for private companies.”

Ends

Notes to Editors
The Company Law Reform White Paper was issued by the DTI in March 2005 and the consultation period is ends 10 June 2005.

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP.

Deloitte & Touche LLP is the UK's fastest growing major business advisory firm based in 21 UK locations, with over 10,000 staff nationwide and fee income of £1,246 million in 2003/2004. It is a member firm of Deloitte Touche Tohmatsu, a leading professional services organisation, delivering world class audit, tax, consulting and corporate finance services, with around 120,000 people in over 140 countries. Deloitte Touche Tohmatsu is a Swiss Verein, and each of its national practices is a separate and independent legal entity.

Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.