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Auditors and the supervision of retail finance: evidence from two small-sized building societies, 1976-1978

  • Batiz-Lazo, Bernardo
  • Noguchi, Masayoshi

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 32193.

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Date of creation: Jul 2011
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Handle: RePEc:pra:mprapa:32193
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  1. Hyun Song Shin, 2009. "Reflections on Northern Rock: The Bank Run That Heralded the Global Financial Crisis," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 101-19, Winter.
  2. Batiz-Lazo, Bernardo & Noguchi, Masayoshi, 2011. "The disciplinary power of accounting-based regulation: the case of building societies, circa 1960," MPRA Paper 28374, University Library of Munich, Germany.
  3. N. Berger, Allen & F. Udell, Gregory, 1998. "The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 613-673, August.
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  9. Slovin, Myron B. & Sushka, Marie E. & Hudson, Carl D., 1990. "External monitoring and its effect on seasoned common stock issues," Journal of Accounting and Economics, Elsevier, vol. 12(4), pages 397-417, March.
  10. Aidan Hollis & Arthur Sweetman, 2007. "The Role of Local Depositors in Controlling Expenses in Small-Scale Financial Intermediation: An Empirical Analysis," Economica, London School of Economics and Political Science, vol. 74(296), pages 713-735, November.
  11. Benston, George J & Smith, Clifford W, Jr, 1976. "A Transactions Cost Approach to the Theory of Financial Intermediation," Journal of Finance, American Finance Association, vol. 31(2), pages 215-31, May.
  12. Tim Congdon & Charles A.E. Goodhart & Robert A. Eisenbeis & George G. Kaufman & Paul Hamalainen & Rosa M. Lastra & David T. Llewellyn & David G. Mayes & Geoffrey Wood & Alastair Milne & Marco Onado & , 2009. "The Failure of Northern Rock - A Multidimensional Case Study," SUERF Studies, SUERF - The European Money and Finance Forum, number 2009/1 edited by Morten Balling & Franco Bruni & David Llewellyn, May.
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