Talks between the audit profession and the government are ongoing as the Big Four continue to warn of an exodus from audit work if they do not receive improved protection against catastrophic negligence claims.
And this week, leading City figures said they would not oppose reform – as long as it was not done in isolation.
Peter Montagnon, head of investment affairs at the Association of British Insurers, whose members account for a fifth of all investments traded on the London Stock Exchange, said: ‘We have long been wary of capping auditor liability, but investors also need high quality audits.’
Montagnon said the ABI was taking a very close interest in the discussions and ‘will be formulating a position in due course’. The group is understood to be in active discussions with the Department of Trade and Industry.
Iain Richards, head of corporate governance and public policy at Morley Fund Management, said: ‘We want to get into a discussion with the profession and the government about what changes need to take place to ensure that we come up (with) and achieve a sensible framework.’
But he also warned that Morley would put a marker down with the DTI highlighting concerns that ‘further reductions in auditor liability, in isolation, would risk creating a serious imbalance in, or even undermining the UK’s audit framework’.
PricewaterhouseCoopers head of regulatory practice Peter Wyman acknowledged a package of reform was necessary. ‘Everybody sees the OFR as being really important. But without auditor liability reform you are not going to get anything other than a very legalistic, negatively worded and generally fairly uninformative audit opinion on the OFR,’ he said.
ICAEW president David Illingworth said a simpler solution might exist.
‘Auditors and their clients could agree in advance limits on their share of any losses. For the auditors this could be based on a multiple of the audit fee.’
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