Auditors and the Supervision of Retail Finance: Evidence from Two Small-Sized Building Societies, 1976-1978

33 Pages Posted: 7 Nov 2011

See all articles by Bernardo Batiz-Lazo

Bernardo Batiz-Lazo

Bangor Business School

Masayoshi Noguchi

Kobe University - Research Institute for Economics & Business Administration

Date Written: November 7, 2011

Abstract

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 (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 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 Registry 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 accept it.

Keywords: corporate governance (the system of internal control), Building Societies Act 1960 (BSA60), the Chief Registrar of Friendly Societies (CRFS), the Treasury, building societies, supervision of retail financial intermediaries, delegated monitoring, UK

Suggested Citation

Batiz-Lazo, Bernardo and Noguchi, Masayoshi, Auditors and the Supervision of Retail Finance: Evidence from Two Small-Sized Building Societies, 1976-1978 (November 7, 2011). Available at SSRN: https://ssrn.com/abstract=1955934 or http://dx.doi.org/10.2139/ssrn.1955934

Bernardo Batiz-Lazo (Contact Author)

Bangor Business School ( email )

Hen Goleg
College Road
Bangor, Wales LL57 2DG
United Kingdom
+44(0)1248382277 (Phone)

HOME PAGE: http://www.bangor.ac.uk/business/staff/

Masayoshi Noguchi

Kobe University - Research Institute for Economics & Business Administration ( email )

2-1, Rokkodai-cho, Nada-ku
Kobe, 657-8501, 657-8501
Japan

HOME PAGE: http://ideas.repec.org/e/pno159.html

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