Why the auditors of a company have a duty to all its stakeholders
UK company law, in common with that of many countries, does at present only require that the auditors of a company submit their report to its members. Those members are usually its shareholders.
We stress that the Corporate Accountability Network has no problem with auditors reporting to the shareholders of a company. We think that the auditors of a company should be liable to its shareholders if there are failings in their work.
But we do have a problem with auditors only reporting to the shareholders of a company. This is because the shareholders of a company do, almost invariably, enjoy the most extraordinary privilege, which is granted by society. This is that they do not have to settle the debts of their company if it goes bankrupt. They do lose their own money invested in it, but they do not have to settle the company’s debts. No one else has this advantage. All the other people owed money by a company – whether they be trade suppliers, employees, a pension fund, a tax authority or others – are unprotected if a company fails. They can, then, lose much more than the shareholders do when a company fails.
We think that this means that a company should account to its stakeholders as well as its shareholders.
But, more than that, we think that this means that the auditors of a company must report to the stakeholders of a company as well as to its shareholders. And it must be liable to them as well. Because the people who really rely on an audit report on a company are those stakeholders. That report may be the only assurance that they might ever that the company that they are trading with will pay them. And in that case the stakeholders have a right to be taken into account when the auditors are considering their opinion on a company’s accounts.