EDITORIAL: Auditors must pay for messing up companies

 

Henry Rotich, National Treasury Cabinet Secretary. PHOTO | FILE 

By BUSINESS DAILY

In the last two decades, auditors have featured prominently in the woes of troubled companies in Kenya and abroad.

From the heady days of the 1990s where State banks ‘cooked’ books to return massive profits (by the standards of the day), auditors have constantly failed to spot trouble even when it did not require a trained eye to do so.

We witnessed several banks, most prominent of them Trust Bank, collapse without auditors being held accountable.

To be sure, auditors have a professional body called the Institute of Certified Public Accountants of Kenya (ICPAK) that is supposed to discipline members, who perhaps not incidentally, often include top company executives. But in the past we have not seen serious measures that can thwart mischief taken especially against the global majors.

There is a clear dilemma auditors face while dealing with clients though. If they want to get the contract renewed year after year, they might have to look the other way when mischief happens.

It is understandable that few clients, especially the dodgy types, would want a whistle-blower auditor. They would go to any length to have accountants cover theft, manipulation of accounts and other mistakes.

That is why we need a third part that can address malfeasance in the profession without compromising its interest. That body must be ICPAK.

The institute needs to clearly demonstrate to foreign and local investors that it can secure their interests by clamping down on wrongdoers.

And by wrongdoers we do not mean the one-man backstreet operations with no political influence. We are talking about fearlessly taking on the global majors the way countries like the US do.

In October 2001, for example, Enron Corporation, a Houston-based, was revealed as one big creative scam. In the subsequent events Arthur Andersen which was the one of the five global majors was dissolved.

One honestly wonders whether any punishment would befall such a giant in Kenya. On top, it is not clear what the ICPAK record is when it comes to whimsical profit restatement by even listed companies. Maybe they have not publicised action undertaken.

It would be important for the government not to buy the spin that auditors can regulate themselves, which to be sure is not a Kenyan narrative as it has been bought everywhere.

We would be reluctant to recommend an oversight body but law agencies and Parliament should be taking serious measures where they detect auditors are not working in public interest.