Brussels’ long-awaited auditor liability report reveals
that risk managers of EU audit firms are dealing with 28 outstanding claims in
excess of €75m, of which 16 are in excess of €160m and five are in excess of
€750m. According to the audit firms, six of these 28 outstanding claims fall
under US jurisdiction. The remaining claims originate from within the EU.
The figures, revealed from the office of Internal Markets Commissioner,
Charlie McCreevy, are for cases as of 31
October 2005, as reported by the Big Four, as well as Grant Thornton and BDO
The report follows an independent study, commissioned McCreevy’s office on
the economic impact of current auditors’ liability and insurance conditions.
In October last year, the Commission published an economic impact study
prepared by an external consultant, London
In line with this report, the commission proposes the following four options
for reforming auditors’ liability:
- the introduction of a fixed monetary cap at European level, but this might
be difficult to achieve;
- the introduction of a cap based on the size of the audited company, as
measured by its market capitalisation;
- the introduction of a cap based on a multiple of the audit fees charged by
the auditor to its client;
- and the introduction by Member States of the principle of proportionate
liability, which means that each party (auditor and audited company) is liable
only for the portion of loss that corresponds to the party’s degree of
McCreevy acknowleged the increasing trend of litigation against auditors.
‘There is an increasing trend of litigation against auditors, but often they
cannot obtain sufficient insurance to cover the risk,’ he said. ‘So there is a
real danger of one of the “Big Four” being faced with a claim that could
threaten its existence.
‘There are many ways to improve this situation: some Member States already
have capped auditors’ liability, while others are introducing proportional
liability combined with some limitations on who can sue auditors.
‘However, given the differences between national markets, there is probably
no one-size-fits-all approach. I want to ensure a thorough debate on the
possible ways forward, and I encourage interested parties to give us their
Does Darwin's theory apply to taxation? Colin ponders...
Two new audit partners have been appointed at the firm BDO in its audit practice following continued growth and investment
Investment in people, tech and businesses impacts on EY's profit per partner figure
If businesses do not take cyber security seriously in their business planning regulators may do it for them, the ICAEW has warned