UK and US part ways over Enron response

UK and US part ways over Enron response

UK to limit liability as for audit firms a result of Enron, but US declines to do so

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
liability debate.

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
prove.

Share

Subscribe to get your daily business insights

Resources & Whitepapers

Why Professional Services Firms Should Ditch Folders and Embrace Metadata
Professional Services

Why Professional Services Firms Should Ditch Folders and Embrace Metadata

3y

Why Professional Services Firms Should Ditch Folde...

In the past decade, the professional services industry has transformed significantly. Digital disruptions, increased competition, and changing market ...

View resource
2 Vital keys to Remaining Competitive for Professional Services Firms

2 Vital keys to Remaining Competitive for Professional Services Firms

3y

2 Vital keys to Remaining Competitive for Professi...

In recent months, professional services firms are facing more pressure than ever to deliver value to clients. Often, clients look at the firms own inf...

View resource
Turn Accounts Payable into a value-engine
Accounting Firms

Turn Accounts Payable into a value-engine

3y

Turn Accounts Payable into a value-engine

In a world of instant results and automated workloads, the potential for AP to drive insights and transform results is enormous. But, if you’re still ...

View resource
Digital Links: A guide to MTD in 2021
Making Tax Digital

Digital Links: A guide to MTD in 2021

3y

Digital Links: A guide to MTD in 2021

The first phase of Making Tax Digital (MTD) saw the requirement for the digital submission of the VAT Return using compliant software. That’s now behi...

View resource