PracticeAccounting FirmsFRC is set for liability cap role

FRC is set for liability cap role

The government consultation on limiting auditor liability could result in the Financial Reporting Council providing a framework under which companies and audit firms can agree a contractual cap.

Link: The Debate: The role of the FRC

According to sources in the profession the option of allowing market forces to determine the limit, is likely to prove easier to include in legislation, rather than having it set by the secretary of state.

The vast majority of the pro-fession is behind a repeal of Section 310 of the Companies Act 1985, which would pave the way for auditors to limit their liability, but there is still debate over how to define that limit.

The companies bill receives its second reading in the House of Lords today. Although auditor liability has been omitted, the DTI has said that it could still be included if government opinion changes due to the consultation launched in December.

‘Simply repealing section 310 wouldn’t work, as companies and auditors wouldn’t know where to start defining limits and a long period of uncertainty would result,’ said ex-ICAEW president Peter Wyman.

Wyman suggested that a framework developed by the Financial Reporting Council, instead of the government, would provide the best way for companies and auditors to contractually define responsibilities in terms of liability in the time allowed.

The auditor liability consultation closes on 12 March.

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