Government stance on audit cap splits business
Jacqui Smith's announcement of an OFT review into auditor liability has split the business world in two after investors reacted with fury to the unexpected study.
Link: Liability cap special report
Months of intense political lobbying from high-profile accountants culminated in Tuesday’s announcement that looks almost certain to be a precursor to the introduction of liability legislation.
Mary Francis, director general of the Association of British Insurers, said legislation would risk creating a ‘moral hazard’, and will put auditors under ‘less pressure to deliver quality’. ‘Our view is that the government should reject the arguments for capping liability,’ she said.
But she faces an uphill struggle, despite support from giants of the investment world including Morley, Hermes, and the National Association of Pension Funds.
Kieran Poynter, UK chairman at PwC, welcomed the announcement and said that ‘over time (liability reform) is likely to open up different sectors of the audit market to greater competition’.
Victoria Cochrane, head of quality & risk management at Ernst & Young, itself the subject of a potentially catastrophic legal battle with Equitable Life, said: ‘We look forward to the issue being dealt with within the current companies bill passing through Parliament, along with director liability and the OFR since all these issues are very much linked together.’
Even mid-tier firms, initially seen as a bar to the implementation of liability legislation, have fallen into line with the Big Four. John Wosner, PKF chairman, said legislation would have a ‘marginal effect on competition’.
‘It will be a positive move for the profession,’ said Wosner.
Jonathan Symonds, chairman of the FTSE100 group of finance directors, said earlier this year: ‘Number one, we are supportive of it: I think there is a broad consensus between the profession and ourselves.’