Jail threat over audit cover-ups

City chiefs today welcomed the Government's plans to reform company law, including the threat of prison terms for directors and employees who fail to volunteer information to auditors.

The move marks an attempt by ministers to ensure Enron-style accounting scandals cannot be repeated in Britain. The City hopes it could help to overcome the loss of confidence which has seen share prices tumble in London and on Wall Street.

Directors are already banned from misleading auditors, but a new Government proposal would make it a duty on all employees actively to offer information that could be useful. Offenders would face up to two years in jail and unlimited fines.Further reforms could be unveiled next week following a meeting today of ministers, regulators and the big accountancy firms.

The accountants are resisting calls for firms to be forced to rotate their auditors, amid fears that some directors are getting too close to the people who are supposed to be scrutinising their accounts.

The clampdown on rogue companies formed the centrepiece of a package of proposed reforms which was welcomed by the Institute of Directors and the Confederationof British Industry. IoD director general George Cox said: "I welcome the proposals to bring about some clarification of directors' duties that the primary role of directors should be to promote the success of the company for the benefit of its shareholders as a whole.

"This is an area where we have been pressing the Government to act."

Competition minister Melanie Johnson said the extra powers were a direct response to the recent wave of American financial scandals. She said: "This is the first time that failure to offer information will be a criminal offence. Our current company law is creaking with age and needs to modernise and reform."