The National Association of
Pension Funds has backed criticisms of the liability caps being proposed by
the audit industry.
The Association of British Insurers this week publicly said it would
‘red-top’ any company that arranged a fixed fee cap with an auditor, as the
debate on the moves shifted heavily towards ‘proportionality’. A red top amounts
to a serious governance warning from the ABI.
The moves may be a blow for firms, as most to prefer proportional liability,
but have not ruled out the prospect of arranging fixed caps.
The NAPF spokesman said: ‘We are not in favour of capped liability. We are in
favour of one form of limited liability, which is proportional liability. We
will need a party to be liable for their portion of any loss. And that is a
quid-pro-quo for improved audit quality.’
The ABI and the NAPF’s members together control more than £2,000bn worth of
investment funds. Despite the setting-up of a working party by the Financial
Reporting Council to look at how the new liability regime would work, it would
appear that key stakeholders are hoping to decide the debate for themselves.
ABI director-general Stephen Haddrill said this week: ‘Government has
proposed that the limit on auditors’ liability should be proportionate to their
responsibility. We agree with that.
‘The companies bill didn’t enact the limit in these terms and some are still
talking of a fixed financial cap on a liability. We can’t support that and we
will red-top any company that agrees such a cap with their auditor.’
Tory Treasury spokeswoman and audit committee chair Baroness Noakes told
Accountancy Age that ‘caps are not popular’, while former Tomkins finance
director Ken Lever agreed that ‘proportionate liability is a more attractive way
Agreements will have to be in place for when the provisions on liability in
the Companies Act come into effect on 6 April.
Representatives from the profession claimed this week they would reserve
their position until the FRC issued its guidance. PwC partner, Peter Wyman said:
‘We are awaiting the outcome of the FRC’s working party and we confidently
expect that will point the way forward.’
A KPMG spokesman said the firm was waiting for the results of the FRC review.
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