The government’s new auditor liability limitation regime was lurching towards crisis this week, as one auditor suggested the government may have to legislate again to sort out the mess.

Audit firms are frustrated with the Financial Reporting Council for delaying crucial guidance on the moves, which they say will hold up the agreements. Limited liability contracts are unlikely to be signed this AGM season. There are further concerns that companies listed in overseas jurisdictions may not be able to limit liability and some expect the government may have to intervene again.

The FRC is still working on guidance on the issue, but it has only reached draft stage,
despite the rules allowing limited liability arrangements coming in this week.

‘We don’t have any robust [liability] agreements in place, although the government intended for the law to come into effect in April, because we’re waiting for guidance from the FRC,’ said Jeremy Newman, BDO Stoy Hayward managing partner.

The contracts have been heavily lobbied for by the audit firms, who are worried about the lawsuits they face, and want at least ‘proportional’ liability.

But companies are understood to be reluctant to sign up to the arrangements, with many ‘still asking why this is a good thing,’ the Association of British Insurers said.

‘On what basis can directors of companies say that entering into a limited liability contract is in the best interest of the company?’ said Herbert Smith partner Hardeep Nahal.

The Confederation of British Industry said this week that there may even be problems for UK companies listed overseas in limiting liability, because of the need to consid er the rules on contracts in other jurisdictions.

‘If there is no agreement in place, then one can anticipate the limited liability arrangements won’t take place, and may need to go back to government again,’ said Baker Tilly managing partner Laurence Longe.

FRC chief executive Paul Boyle said: ‘What we’re going to produce is guidance. If people wish to go ahead and make an early start, they’re free to do so. I’m not sure that anyone is actually being held up by us at this stage.’