Audit cap may sneak into companies bill

Link: DTI prefers auditor liability cap

Trade and industry minister Lord Sainsbury announced the prospect in a debate on the companies (audit, investigation and community enterprise) bill in the Lords.

He said he could confirm that if the consultation under way on auditor and company director liability ‘shows that there is a clear case for reform, and that if the case for reform is urgent in that sense, the government will seek to bring forward amendments to the bill’.

But he warned: ‘I do not believe that that will be a very easy process.’

Lord Sainsbury also repeated the government pledge to introduce wide ranging modernisation and simplification of company law ‘as soon as possible’ and signalled this would be done by means of draft legislation.

But he refused to be more definite over timing.

He was under pressure during the debate from Lord Sharman, who called for progress on auditor liability and accused the government of taking ‘a nibble approach’ to overall reform.

Sharman said: ‘It is critically important that we help our directors by modernising company law.’

Former Tory minister Lord Freeman, an accountant, said he found it difficult to explain to the profession and the City why the government was about to embark on Lords reform when not yet ready to deal with company law modernisation.

He said that if liabilities for auditors and directors were to be proportionate and capped, the Financial Reporting Council should devise the methodology for capping.

Tory spokesman Lord Hodgson of Astley Abbotts said company law had become incomprehensible as a result of successive layers of change and amendment.

He warned that reforms in the Bill under debate would be costly.

Sainsbury said Parmalat showed spectacular Enron and WorldCom-style collapses could happen in Europe and ‘we cannot be certain that a comparable situation could not occur in this country’.