The UK is limiting its liability for audit firms because of Enron, but the
US doesn’t want to do the same, arguably for the same reason.
The UK has won the battle in persuading government that allowing auditor
liability arrangements will serve the greater good in securing a vital part of
the profession which serves UK plc.
But it was a battle fought long and hard, mired with mistrust of whether
firms were exaggerating the risk, as well as outright annoyance that the
profession needed protecting in the first place.
It comes perhaps as some surprise that US auditors in the form of the
Centre for Audit Quality whose members number 800 are beside themselves over
the reluctance of the treasury there to consider limiting their liability.
Yet they continue to insist that their financial statements be filed
privately with the US oversight board. And some are drawing the connection
between that lack of transparency, and the goodwill that attaches to them in the
In the UK, the good sense that prevailed over limiting liability had much to
do with the transparent approach of the UK firms, who went out of their way
after the Enron collapse to exhibit by way of their financial statements the
extent of the risk they faced in the event of similar litigation.
Financial Reporting Council chairman Paul Boyle said UK firms generally had
higher levels of transparency than their US counterparts, which contributed to
securing more support for limiting their liability. He suggested that US firms
reconsider their stance.
‘One of the points they’re arguing is that firms should not publish their
financial statements. There is a link here, which they might want to think
about, between them not wanting to publish these statements and the lack of
support for limiting liability.
‘There are still people who say the firms are exaggerating the true scale of
liability risk,’ said Boyle.
The US firms may want to stick to private reports for now.
But if they want their proposals for limiting auditor liability to be taken
seriously, they should equally consider providing the proof of the risk that
they claim to face.
And if the risk is as serious as they say it is, it shouldn’t be too hard to
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