PracticeAccounting FirmsRivals to follow PwC on audit liability disclaimer

Rivals to follow PwC on audit liability disclaimer

PricewaterhouseCoopers' decision to include a disclaimer of liability for third party use of audit reports could see the rest of the Big Four and other large accountancy firms following suit.

Link: PwC acts to limit risk on audit reports

and Analysis: Can you still bank on an audit?.

Even though it is unclear whether such a disclaimer would have the desired effect, both KPMG and Ernst & Young have admitted the inclusion of such a clause is currently under consideration although no decision has yet been taken. Deloitte & Touche is keeping quiet over the matter.

The move to include a disclaimer was prompted by a case in July where the Royal Bank of Scotland sued Glasgow auditor Bannerman Johnstone Maclay to reclaim a lost loan, which it said it had offered based on information contained in the audited accounts. The decision went in favour of RBS although the case is currently going through appeal procedures.

The ruling cast doubt on previous assumptions of liability held by accountants from the Caparo case in 1991, which implied that accounting firms, in this case Touche Ross, had no duty of care in audit reports to third parties not known at the time. ‘This case has opened up a whole new range of liabilities and we want to clarify where we have a duty of care and where we don’t,’ said Glyn Barker, head of audit and business advisory services at PwC.

Regulators are also following the case but have yet to offer advice to their members.

Tom McMorrow, director of legal services at the Institute of Chartered Accountants of Scotland, said: ‘I see why PwC is doing this but casebooks are littered with failed disclaimers. If this method had been applied in the Bannerman case, it may not have made a difference if subsequent actions by the firm didn’t back it up.’

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