PracticeAuditWatchdog urged to lead on liability

Watchdog urged to lead on liability

Investors want FRC to liaise with government to preserve quality of audits

Pressure is mount-ing on account-ing’s watchdog to take a lead role in the
ongoing dispute over auditor liability, after investor concerns were ignored by
government.

Following last month’s publication of draft regulations that would allow
auditors to limit their liability to clients, investors are calling on the
Financial Reporting Council to find its voice and work with the government to
deal with shareholder worries.

Appeals from the investment community for proportionate liability to be
delayed until further improvements in audit quality can be made were overlooked
in the regulations.

Some investors were also horrified to find that the clauses put forward by
the government could also be read as allowing a monetary cap, rather than
proportionate liability. Additionally, some of the audit improvements agreed as
part of the original deal to allow liability limitation, had been drafted in
such a way that they are ineffective, they claim.

Now investors want the FRC to play a key role in communicating with the
government to ensure audit quality is not damaged by recent moves.

‘The FRC should be taking a lead on this as the legislators seem to have come
up with something that even the DTI does not understand,’ said one investor.
‘Unfortunately, we have the department of timidity talking to the council of
timidity.’

Investors look unlikely to get the help they want from the FRC, however.
Chief executive Paul Boyle has previously stated that while the board supported
limited liability in principle it was a ‘political’ question in which it would
not become involved and that arguing the case ‘should be left to the accounting
profession’.

The body also recently rebuffed one of the investors’ key concerns, that the
introduction of international accounting standards signalled the end of the
‘true and fair view’ audit.

In an analysis published earlier this month, the FRC said that despite the
replacement of the ‘true and fair’ requirement with the words ‘fair
presentation’ for companies using IFRS, ‘the concept of the true and fair view
remains a cornerstone of financial reporting and auditing in the UK’.

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