Auditors dismiss limited liability link with low fees

Suggestions from the accounting regulator that firms could lower their audit
fees in exchange for clients agreeing to limit their liability have been shot
down by the profession.

Ideas of potentially lower fees were contained in guidance published by the
Financial Reporting Council
last week.

FRC chief executive Paul Boyle said: ‘Firms say the reason audits are so
expensive is because of the premium for risk. Investors will say now that
liability is limited, risk is lower, so presumably the price can come down.’

But the firms argue that this is not the case.
PricewaterhouseCoopers’ global
head of regulatory policy Peter Wyman, said that the legal responsibility of the
firms is not reduced so neither could the fees be reduced.

‘We have always said proportionality might save us from catastrophe, but it
is certainly not going to reduce the cost of normal claims from management.
We’ve accepted that we will remain responsible for our own mistakes. We’ve never
priced catastrophe into our costing.

‘So an LLA that gives proportionality has no impact on our costs and
therefore will not have an impact on our fees,’ said Wyman.

Jan Babiak, managing partner of
& Young
’s regulatory and public policy affairs said: ‘Our audit fee
rates have never included a premium for risk and we have no plans to do so. In
our view, it is unlikely that the market response to LLAs will be a reduction in
audit fees.’

’s Steve Maslin said the lower fee idea emerged following arguments
that costs could rise to cover higher risk: ‘Liability is about whether we’re
going to avoid another Andersen-like collapse over an isolated audit. Fees are
not relevant to the question of liability,’ Maslin said.

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