The country’s finance directors will offer scant opposition to government proposals to cap the liability of auditors, as the Big Four accounting firms prepare for a possible September introduction of legislation.
This week’s Accountancy Age/ Reed Accountancy Personnel Big Question asked nearly 300 FDs whether they would oppose a statutory limit on how much auditors can be sued for. Some 41% said they would oppose such a move, while 47% were in agreement.
Within accounting circles it has been accepted that the liability cap is inevitable, and sources claim that, barring delays due to war or other unexpected events, the firms could have their way by September.
In a recent speech, ICAEW president Peter Wyman, said the Big Four firms will become uninsurable unless legislation is implemented. ‘We are living in an increasingly litigious society,’ he said.
‘Audit firms are private partnerships, they do not have vast reserves. And the risk they are asked to carry is uninsurable. The commercial insurance market will not insure the risk of a large claim against an auditor, yet the audit firm is expected to have unlimited liability.’
But moves to cap auditors’ liability will face fierce opposition. Jim Cousins, the Labour MP who has been pressing the government over the issue, said he would oppose a cap as it would affect the ability of investors to win compensation from auditors.
‘I am aware of Mr Wyman’s views, and I hold to my view that their line is anti-competitive.When groups like the Equitable Life Members Action group realise what’s in hand, they will be very, very angry indeed. They were the obvious first port of call for me.’
Equitable Life is still attempting to sue Ernst & Young over the £1bn hole found in the life assurer’s accounts.
A survey this week showed FTSE-100 companies are increasingly concerned by the increased role given to non-executive directors by the Higgs report. The report gives non-execs extra responsibility, adding to concerns about who bears the burden of risk.
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