Liability fears over law review
Concerns are rising that overhaul of company law will render decision-making impossible for directors and hit auditors hard.
Company Law Review proposals to extend the legal accountability of directors and auditors would render business decision-making impossible, claim PricewaterhouseCoopers and the English ICA.
Responding to the wide-ranging Company Law Review consultation ahead of last week’s deadline, they have asked the Department of Trade and Industry to take another look at proposals to extend auditors’ liability – arguing it should be more ‘proportional’.
Roger Davis, PwC partner and chairman of the institute’s company law steering group, said: ‘Pussyfooting with legally defensive language will be unhelpful and this is a generational opportunity to reset the profession’s direction by liability proportionate to blame, or its closest possible surrogate.’
Davis also raised concerns about widening the legal accountability of directors, as discussed in the review. He said: ‘It would be impossible to administer and render business decision-making impossible.’
However, both Davis and the institute are supportive of the plans to introduce a new Operating and Financial Review in light of disparities between corporate and market values.
Graham Ward, president of the English ICA, said: ‘We fully support the conceptual basis of the new Operating and Financial Review. Many of the drivers of corporate value can no longer be found in the traditional annual report.’
The three-year long Company Law Review aims to bring the law into the 21st century by simplifying accountability and director’s duties.
In November the DTI will issue plans of how it proposes to carry forward proposals. A full report of the review will be published by 1 April 2001.
Increasing auditors’ liability
THE AIMS OF COMPANY LAW REVIEW
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To modernise company law while taking into account moves by the European Commission and developments on international accounting standards.
Among other changes the four main points are as follows:
- Developing a statutory statement of directors’ duties
- Introducing a Operating Financial Review (OFR)
Delegating accounting laws to the Financial Reporting Council
- Requiring companies to publish accounts on the internet
- Extending auditors liability to potential shareholders and creditors, but capping total liability.