PracticeAuditABI says liability cap is ‘moral hazard’

ABI says liability cap is 'moral hazard'

Allowing audit firms to negotiate liability caps with their clients will take the pressure off audit quality, the Association of British Insurers has warned in its condemnation of the new proposals.

Link: Special report: Liability cap

Speaking at the ICAEW annual conference, Mary Francis, director-general of the ABI, said while it understood the concerns of accounting firms, ‘capping the auditor’s liability will not do much, if anything, to guarantee quality’.

‘On the contrary it risks creating a moral hazard, which will put auditors under less pressure to deliver quality,’ she told accountants.

She added that introducing a cap in the UK would not protect firms from scandals elsewhere and could therefore ‘not prevent the collapse of one of the Big Four’.

‘We all remember that Andersen destroyed itself over Enron. After that scandal broke, Andersen’s clients deserted it in droves and it collapsed without a shot being fired in litigation. A cap on its US liability would not, and should not, have protected it. A cap on its UK liability would have been even less relevant.’

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