The reluctance of the US to implement audit liability reforms is not just an issue for the US firms but also for the future of the networks themselves.
US experts have downplayed the prospect of bringing in a liability cap in the US similar to those in the pipeline in the UK an issue that could make it more difficult for UK firms to form closer ties with their US counterparts.
‘It would no doubt be a concern, as there are exposure risks which are peculiar to accounting firms,’ says Baker Tilly managing partner Lawrence Longe.
At the recent meeting of a group discussing issues of audit choice in the US a senior lawyer, John Coffey of Bernstein Litowitz Berger & Grossmann LLP, put forward the argument that the case for a liability cap has not been made by auditors. Coffy said that claims of catastrophic liability exposure are ‘exaggerated’.
‘Despite several multi-billion dollar scandals involving false financial statements of client companies, audit firms avoided suffering any serious blow, let alone any catastrophic threat,’ he said.
He further argued that the firms’ financial arrangements have always been largely opaque: ‘Audit firms have not been sufficiently forthcoming on matters such as the amount of coverage from classic insurance underwriters or their efforts to self-insure,’ he said.
Coffey’s criticisms come at an awkward time for auditors in the US who hope that the current review of the profession by the Treasury would see a move in the direction of Europe, which has already accepted that the collapse of a large firm would trouble the capital markets.
But the fact that a catastrophic lawsuit hasn’t yet happened is no indicator that it won’t.
A $500m (£254m) lawsuit against BDO Seidman could wipe the firm out of the US market, KPMG’s Public Affairs partner Neil Sherlock points out.
‘Just because nobody has gone bust yet doesn’t prove the point that there is no need for limited liability,’ he says.
Longe added that it was worth bearing in mind that the firms worked within a multi-jurisdictional and legal environment.
‘They provide global capacity, despite the risk, in the hope that common sense will prevail. It wouldn’t be in the interests of the capital markets to make the auditors the scapegoats of last resort,’ says Longe.
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