Trade secretary Patricia Hewitt finally killed plans for a liability cap - but immediately offered fresh hope to auditors by proposing a new regime where liability would be reduced proportionately on a contract by contract basis.
Link: Liability cap special report
Accountancy Age understands from sources close to the trade secretary that new arrangements could be introduced in the companies bill as soon as October this year.
However the DTI has indicated proportionate liability will only go ahead if competition at the Big Four level is improved. The developments follow talks on Monday in which Big Four firms told Hewitt they would pull out of audits for some banks and insurance companies if a cap is not delivered.
‘If we can’t limit liability or get insurance then we have to manage risk in any other way we can by removing ourselves from the high risk audits,’ said Peter Wyman, head of professional affairs at PricewaterhouseCoopers.
The threat is likely to come to nothing after Hewitt’s announcement.
‘The government…actively calls upon auditors, business and investors to work together to examine whether proposals for a system of proportionate liability via contract are practical and/or desirable,’ she said in a written statement to Parliament.
If the government misses the chance of introducing a new measure in October, the next opportunity will be the main companies bill in the new year.
While the Big Four firms expressed their disappointment at the lack of a cap they also expressed their optimism over the proposed review.
‘That principle is widely supported by the business community and, indeed, is the normal basis by which we contract with our clients for services other than audit,’ said Kieran Poynter, UK chairman of PwC.
Mike Rake, UK senior partner and chairman of KPMG International, said Hewitt’s statement provided an ‘opportunity to formulate a proposal which is robust and pro-competition’.
Peter Montagnon, head of investment affairs at the Association of British Insurers, said it had always been in favour of proportionate liability.
