Britian has benefitted from strict control of auditors, says Howard Davies, chairman of the UK’s Financial Services Authority. But the FSA is looking at even tighter controls.

A requirement mandating rotation of auditors at a defined interval, perhaps every five years, regular retendering of audit work, orlimiting the amount of non-audit work which an auditor can do. Davies made the remarks at the World Economic Forum in New York.

Davies noted that the regime in the UK for the oversight of the accounting profession and for financial regulation, is different than in the U.S. “First, there is our approach to accounting, where our standard-setters argue that the British approach emphasises substance over form and seeks to address the underlying economic reality in consolidated accounts, rather than staying close to the particular corporate and legal structure adopted. Secondly, the UK profession argue that the arrangements for the oversight of auditors and audit quality are somewhat more robust than those in the US.”

Davies said that new whistle-blowing requirements help the FSA. “Auditors of a regulated firm must report directly to us any contravention which is relevant to the exercise of our powers, for example. If they do not do so, we can disqualify them.”

He said its other notable advantage is that the UK’s unified regulatory system allows the FSA to look at the all of the financial activities of a diversified group on a consolidated basis, “and provides a focal point for co-operation with regulators internationally. It allows us to draw lessons for bank counter-parties from problems in securities and derivatives markets.”

“It is not fool-proof, however, and internationally we need to work more on implementing appropriate disclosure rules, especially of complex derivatives, to allow more effective market discipline. They would also allow a market-driven focus on a group1s total exposures to be a useful check on prudence and viability, supplementing the regulator1s direct work.”