Liability limitation forms missing link
Report into audit competition and choice has little mention of the changing landscape on auditor liability
Countless accountants and other parties interested in the UK audit market
will probably not thank the government for the timing of the release of its
report into audit competition and choice.
What should have been a relaxing Easter weekend was probably spent pouring
over the 167-page document looking for further insight into what can be done to
improve the current state of affairs.
What would have gone through the minds of many, however, was that a vital
part of the report was missing. Despite some fairly dramatic statements on the
state of play, there was little mention of the changing landscape on auditor
liability.
In fact, the report states that it ‘has not examined in detail the role of
auditor liability, nor attempted to assess the level of quality delivered in the
audit market’.
But in drawing together its conclusions, the report is both providing
evidence on whether liability limitation should be allowed, and posing more
questions about how the market would be altered if it becomes law.
James Barbour, director of accounting and auditing at ICAS, said that the
report showed that the introduction of proportionate liability is essential ‘to
ensure that at the very least the current level of competition is maintained.’
Peter Wyman, head of professional affairs at PricewaterhouseCoopers, argued
that the issue of auditor liability and competition and choice are intrinsically
linked.
‘If there is no change to liability and the Big Four go to a Big Three, do
you think the mid-tier firms will leap in and take on all that risk, or stay in
their comfort zones? If there is liability reform you could envisage new
entrants to that market.’
Grant Thornton and BDO Stoy Hayward recently hinted at moves into Big Four
territory, but fears over liability issues remain.
As the report failed to take into account the likely prospect of a cap, it
will be down to the profession and other stakeholders to figure out the
potential ramifications on competition during the undoubtedly prolonged
discussion period.