Disclaimer threat to audit’s status

Link: US concerns grow over audit disclaimers

Stuart Parker, CEO of business finance bank NMB Heller, said he was astonished to find a ‘new line’ in an audit report when it was recently signed off.

‘The new line absolves the auditor from any responsibility except to shareholders. It is a gradual erosion of the audit. Auditors have to regain their original status,’ he said.

NMB Heller and its Dutch owner ING are both audited by KPMG. KPMG confirmed that in the UK it has begun to use the disclaimer. ‘From this week onwards, we will be starting to apply the disclaimer. We waited until the release of the ICAEW guidance, which came out two weeks ago,’ a spokeswoman said. ‘The feedback from clients has been neutral.’

Robert Hodgkinson, technical director of ICAEW, responded to Parker by saying the institute had little choice but to recommend a disclaimer.

He pointed out that in a recent case in the Scottish courts, the judge argued that had there been a disclaimer, there would have been no court case.

‘For a professional body, it is then very difficult not to advise members to add the clause. If they wouldn’t, judges in following cases would say they deliberately didn’t put the clause in. It’s a catch 22,’ he said.

Hodgkinson acknowledged auditors have an ‘assurance’ task towards third parties, but argued this should not be an unlimited ‘insurance’. ‘Auditors should not be seen as an underwriter of risk,’ he explained.

Part of the UK’s problem, he said, was that auditors had no liability against third parties while they had unlimited liability to clients. It would be ‘far more reasonable to have measured liability’ to both, he argued.

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