Accounting Tragedy in Aylesbury

The Accounting and Bookkeeping College is located in Aylesbury. There has been very bad news in Aylesbury this week with the announcement from Lloyds Banking Group that the company will be closing its offices in the town with all the staff either moving elsewhere or becoming redundant.

This sad story goes back to the dramatic demise of Equitable Life. Equitable Life, after running into extreme difficulties, was taken over by HBOS which, in turn, is now part of Lloyds Banking Group. The sorry tale of Equitable Life was told by Lord Penrose in his 2004 report to the treasury. For anyone that read the report from outside the pensions and investments industry it may well have come as a surprise to learn that, although the accounts of the business were subject to an audit, the auditors were quite correct in delivering a clean audit report even though Equitable Life was doomed. The auditors of Equitable Life, and any other business providing insured pension investments, were only required to look at the assets on the company's balance sheet.  Apparently UK auditors do not have the competence to assess the liabilities of a pension provider. The liabilities, incidentally, are the amounts of the pensions that will ultimately be paid. Equitable Life's own actuaries, like all other pension providers, calculated how much would be payable to meet those pension obligations and, conveniently, always found that those liabilities were adequately covered by the assets. They weren't. Equitable Life had promised more than it could afford to pay. That has made the retirement of many thousands of pensioners a lot less comfortable than it should have been and has now cost 800 local jobs.

The Penrose report wasn't intended to be a lesson for ordinary accountants but perhaps it should be?

Company accounts need to be true and fair in all respects, assets as well as liabilities, or else they are useless.