Investors pull plug on auditor liability deal

Investors have backed out of a government-brokered deal to allow auditors to
negotiate proportionate liability with clients, arguing further improvements
need to be made to audit quality.

Auditor liability firmly on
government’s agenda

A standoff looks set to ensue, with investors wanting to see more changes to
the audit process, and auditors refusing to take on more responsibility without
greater protection from damaging claims.

‘We think the changes we have been seeing in terms of audit reforms,
standards and quality have not met the requirements set down as part of our
willingness to engage on audit quality,’ said Iain Richards, head of governance
at Morley Fund Management.

The National Association of Pension Funds said: ‘Proportionate liability
should only be commenced when material improvements to the audit process have
been delivered.’

It argued that more concrete results from the AQF were needed, but would
probably come too late for inclusion in the company law reform bill.

Investors are confident that their position will be accepted by the DTI.
‘There are all sorts of reasons why the legal view might be that shareholder
interests will always prevail,’ said one investor. ‘Ultimately the end user
can’t have their rights overridden.’

The change of stance has angered the accounting community. AQF chairman
Gerald Russell said auditors would not change their practice unless changes to
the regime were made first.

Peter Wyman, head of professional affairs at PricewaterhouseCoopers, said:
‘We’ve kept our part of the bargain, I’m sure the government will keep theirs
even if some investors want to keep changing the rules.’ The DTI said it was
currently considering the bill and would respond in July.

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