Lord Lawson accused city regulators and the
audit community of being “asleep on the job” prior to the financial
crisis, a House of Lords enquiry heard yesterday.

The Financial Reporting Council (FRC), Office
of Fair Treading (OFT) and Financial Services Authority (FSA) were
all accused of failing to effectively communicate with auditors,
stakeholders and regulators before the crisis.

“You were asleep on the job, and to the extent you were
half-awake, your eyes were not on the ball,” said Lord Lawson.

The Committee tried to establish whether the
regulators are doing enough and if steps have been taken to prevent
a similar collapse in the future. The FRC said it thought more
could be done, suggesting additional registration of auditors by
the FRC to be implemented.

Currently the Institute of Chartered
Accountants for England and Wales conducts the registration. “If we
had registration in our hands we would be able to influence its
systems and remove questionable partners from public audits. At the
moment it is really difficult for us to review mistakes and we want
our powers to be strengthened,” FRC chairman Baroness Hogg
said.

All the witnesses strongly opposed large audit
networks offering non-audit services to audit clients and said the
UK has to work with the wider European and international community
when making changes in the audit sector.

The FSA managing director of risk Sally Dewar
said communication between the regulator and the auditors could be
improved. “At the moment auditors have to inform us of issues found
in audits, however auditors are passing on the responsibility to
clients and saying they should inform us,” Dewar said.

There were many questions asked by the Lords
but regulators were unable to answer all the questions and admit
partial responsibility, encouraging the Committee to suggest
changes to the audit market. The enquiry also said there was a risk
of greater systemic failure if one of the Big Four were to
collapse, but concluded that further research was necessary.

The committee is to hear from the Big Four in
the next couple of weeks.