Auditor fines are welcome but why aren’t Thomas Cook bosses being targeted?

It’s good that auditors are being forced to shape up but company directors should be similarly investigated, James Moore says

A fine against the auditors might buy off public outrage over Thomas Cook's collapse (PA)

The number crunchers are on the naughty step like never before.

Fines levied by the Financial Reporting Council (FRC) jumped 44 per cent to a record high of £24.3m in the year ending 30 September, according to Thomson Reuters, the tech and media outfit.

The rise is easy to understand given the way a number of high-profile companies have collapsed just months after having been signed off as going concerns by their auditors.

The speed at which they’ve moved from “more or less OK” to “under pressure” to “Christ, who’s got the receiver’s number on their iPhone?” has understandably raised questions about what those auditors were actually doing.

The FRC’s activity can itself be seen partly as a response to criticism that it has been asleep at the wheel along with its charges.

A new watchdog is on the way to replace it. This one will presumably have sharper claws. There’s a new sheriff in number-town!

One does, of course, have to be a bit careful with this sort of data. It’s inevitably lumpy and can be distorted by one or two big penalties in a particular year or even a particular month.

It also depends on when you look.

In July, for example, the FRC reported that its fines had nearly trebled from £15.5m to £43m. The difference between the two sets of numbers can be explained by dint of the fact that the two organisations were looking at different 12-month periods.

It’s nonetheless interesting that Thomson Reuters found a similarly sharp increase in US fines on auditors, from $12.5m to $64.7m (£9.9m to £51.1m).

It all feeds into the general perception of regulators moving to force auditors to shape up.

Still, while that’s very welcome if it ultimately leads to them taking a more assertive approach with their clients, we shouldn’t forget that it’s extremely rare for accountancy firms to play active roles in corporate collapses.

Enron is one example where that happened. You may remember Andersen and its involvement in helping the collapsed energy-trading giant to create its “off-balance sheet vehicles” where there were all sorts of nasties.

It’s because of them that Andersen followed clients down into corporate hell and the big four accountants were created from what had been a big five.

More often the auditors are guilty of sins of omission.

All this does rather raise the question of whether other failings at big companies are being targeted with equal vigour. Those, say, of directors, executives, or maybe other advisers?

Turning a blind eye to corporate rot is bad, and should be punished. But shouldn’t we also be looking at the cause of the problem?

At the core of nearly all corporate failures can be found failures of corporate governance and failures in the boardroom. If we’re lining up villains perhaps we might also include politicians who’ve sat back and done nothing about corporate malfeasance just as the auditors have.

As I wrote recently, the Insolvency Service was called in to take a look at Thomas Cook, just as the FRC decided to investigate the work of its auditor.

The chances of the latter taking action are far higher than the former, in part because the bar for doing so is set lower.

A fine, perhaps a heavy one, shouldn’t buy people off and be allowed to divert attention from the fact that bigger problems aren’t being looked at because it’s just too much damn effort. But it might do that.