Trade and Industry secretary Patricia Hewitt says the government is considering introducing auditor rotation and stripping executive directors of their powers to appoint company auditors in the wake of global accounting scandals.
Banning auditors from supplying other lucrative consultancy services was also one of the measures that the government was considering, she added.
In a radio interview in advance of a major speech to an accounting conference in Cambridge she made clear radical reform is on the agenda.
Hewitt said the string of accountancy scandals in the US – involving Enron, WorldCom and Xerox – had frightened investors and made people question the relationship between senior company executives and their auditors.
She said on BBC Radio Four’s Today programme: ‘It would be crazy to say it can’t happen here.’
She said the US scandals had shown a ‘much too cosy relationship between finance officers or chief executives and their auditors.
‘There is clearly a case for the audit committee to appoint auditors on behalf of the shareholders.’
She added: ‘Other measures demanded of UK companies could include the rotation of auditing firms.
‘There are obvious attractions to the idea that you should rotate the auditors rather than potentially having an audit firm serve the company for a very, very long time.’
Hewitt suggested that big auditing firms could also be barred from providing other lucrative services to companies they are auditing.
She also revealed the government was considering an overhaul of company law before the latest string of US scandals.
A review body has carried out a two-year exercise involving extensive consultation, and will shortly be reporting its findings to the DTI secretary.
‘Of course we don’t want to rush in with unnecessary regulations but it would be silly not to look at our system and see how we can continue to improve it,’ Hewitt said.
