Auditors and the supervision of retail finance: evidence from two small-sized building societies, 1976-1978
Bernardo Batiz-Lazo and
MPRA Paper from University Library of Munich, Germany
This study adds to the accounting history literature by looking at features common to major defalcations in two small-sized building societies (namely the Wakefield and the Grays). These features were the dominance of an individual over a building society’s systems, and poor systems of internal control and supervision. Because they failed to recognise the significance of these factors sufficiently, auditors of both societies were criticised for failing to discharge their duties as expected under the Building Societies Act 1960 (BSA60) (which had introduced a new auditing regime by requiring the auditors to examine whether the directors of a society complied with its requirement to establish and maintain a system of internal control and, if not, to report thereon). The cases of the Wakefield and the Grays were a turning point in the supervision of retail financial intermediaries. Prior to them the Chief Registrar of Friendly Societies (CRFS) had adopted a reactive approach to supervision, which effectively delegated the monitoring of the societies to external auditors. After the defalcations were uncovered, they showed there was a lack of productive communication between the Registry and external auditors. As a result, it was felt there was a need to reform and adopt a proactive approach to supervision of the societies under which the CRFS was to directly examine the quality of the auditor’s work. The professional accountants, as represented by the Institute of Chartered Accountants of England and Wales, initially resisted such reform. But ultimately, accountants could not help but to accept it.
Keywords: corporate governance (the system of internal control); building societies; the Chief Registrar of Friendly Societies (CRFS); the Treasury; supervision of retail financial intermediaries; delegated monitoring; UK; accounting history; financial auditing (search for similar items in EconPapers)
JEL-codes: N8 M41 N2 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc and nep-his
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