Litigation funding has certainly ruffled the feathers at Moore Stephens, the firm being sued with an unconnected third-party bankrolling the case. But the controversy hasn't stopped Smith & Williamson, which has its own established audit arm, from setting itself up as a litigation funder.

Litigation funding is a new concept in the UK, travelling across the pond from the litigious US. A third party funds the litigation and takes a cut from any money won in the ensuing court battle.

Auditors are particularly worried that they will be targeted more speculatively in litigation by liquidators of failed businesses, if the liquidator can gain access to a funder.

But experts suggest that Smith & Williamson, with its own knowledge of insolvency, is unlikely to fund spurious and speculative claims because of the reputational damage it would have on the firm.

Some insolvency industry insiders suggest the firm's service, provided through its banking arm, could actually prove to be useful for them.

'It's very important that funding is made available to liquidators to get the ball rolling and pursue assets,' says Chris Laughton, partner in business recovery at Mercer & Hole.

Laughton adds that he believes there should be 'minimal worry' for auditors, as liquidators must jump several hoops, including clearing their plan with counsel, before they get the go-ahead to enter litigation.

He also dismisses concerns that firms would not want to work with S&W, essentially a rival.

'Do you want to give them the advantage of making profit out of a deal? If they offer the best chance for a return then that [concern] shouldn't matter. I can't think of a reason to say "we won't work with them because of who they are ".'

Philip Long, head of corporate recovery at PKF, says: 'While there are insurance products on the market, additional tools [for insolvency practitioners] are always welcome.'