Firms warned of plans to scupper liability caps

Firms have been warned to be wary that investor plans to curb the different
ways in which they limit liability could scupper hopes of easing Big Four
dominance.

Ian Gordon, senior lawyer at Reynolds Porter Chamberlain said that one of the
aims of the Companies Act, which comes into force in April, is to avoid a Big
Four collapse, the FT reported.

‘By not allowing fixed caps, you’re not allowing that aim,’ Gordon said.

The ABI warned last year that they would red top attempts by auditors to
introduce caps into their contracts with companies.

Investment affairs director at the ABI, Peter Montagnon, said that members
considered ‘a fixed cap is not actually likely to contribute to an increase in
choice in the audit market.’

‘They don’t think it delivers in terms of quality or choice and, depending
how it is constructed, could potentially be quite unfair by giving auditors too
much comfort,’ said Montagnon.

Gordon disagrees.

‘By setting a fixed financial cap on their liability, medium-sized firms, who
may be wary of bidding for listed work, would be freer to vie with Big Four
firms for the audit of work of large listed companies,’ he said.

The Financial Reporting Council is currently
consulting on draft guidance on limited liability arrangements, as permitted by
the 2006 Companies Act.

Further reading:

Investors lay down law on liability caps

FTSE 100 and auditors in liability stand-off