PracticeAuditMinisters to limit auditors’ liability

Ministers to limit auditors' liability

Auditors' efforts look set to pay off finally as last night industry minister Jacqui Smith agreed in principle to limit their liability in the new companies bill.

Link: MPs push for anti-avoidance clause

At a meeting of auditors, shareholders and business groups yesterday, Smith agreed to limit auditors’ liability against negligence claims in exchange for a criminal sanction for recklessly issuing a misleading opinion and increased disclosure for shareholders.

If Labour wins the next election, it is expected the bill will be introduced in the middle of 2005.

Following the collapse of the former Big Five firm Andersen in 2002, auditors stepped up their campaign to limit their liability, arguing that a single claim could bring down another large accountancy firm.

Currently, when a company fails, auditors can be sued for the bulk of any loss, even if they aren’t wholly to blame, while company directors and other parties often escape catastrophic financial claims because auditors are viewed as having deep pockets.

Auditors will also have to explain in more detail why they have resigned an audit, something they have been keen to do for a number of years.

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