Pioneering body has cap in its sights
Radical proposals to shield auditors from crippling negligence claims could be in place as early as the summer, Gerald Russell, chairman of the Audit Quality Forum, has said.
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The AQF – a groundbreaking think tank consisting of leading accountants, investor groups, business and government officials – has set up five working groups to investigate key issues, such as investor rights, resignation statements, engagement letters and the signing off of audit reports.
The AQF believes improving the quality of audit reports and increasing investor access to audit information will allow it to secure legislation. This will protect auditors from massive lawsuits, such as the £2.5bn made by Equitable Life against Ernst & Young.
Russell, also a senior partner at E&Y, said the success of the AQF was vital for the audit profession, as it was ‘part of a package’ that would enable government to finally push through legislation offering proportionate liability protection.
‘By focusing on improving audit quality the forum provides a quid pro quo for government to pass proportionate liability protection laws,’ said Russell, adding that the industry would continue pursuing protection through other channels too.
The five AQF working groups will report back to the body in March and after their recommendations are adopted, the new body will immediately start work on implementation.
‘The findings of the working groups, once accepted, will be implemented by the relevant organisation, whether it is the institutes, regulatory bodies or, if necessary, government,’ Russell said.
To push through changes as swiftly as it can, the AQF will avoid taking the legislative route, if at all possible. The only change that may require legislation concerns the vital question of allowing investors to question auditors at AGMs. The success of these particular changes is critical if auditors are to secure liability protection.
Investors suing auditors have done so on grounds of auditor negligence. By supplying investors with greater access to audit information and allowing questioning at AGMs, auditors can allay suspicions and avoid comeback from investors.
‘There is a thirst for information about the dialogue between boards and auditors from investors. By making information more readily available, auditors can hopefully keep investors satisfied and receive more protection,’ Russell said.