PracticeAuditAuditors’ liability wishes in company law bill

Auditors' liability wishes in company law bill

Proportionate liability gets green light, but auditors could also face jail time.

Auditors have finally won their case for proportionate liability, after it made an appearance in the draft company law bill.

Link: Parliament to debate limited liability

If the bill is passed, shareholders will be able to ‘agree a limit to the auditor’s liability for damage incurred by a company, to such an amount that is determined by the courts to be just and equitable, having regard to the relative extent of responsibility of the auditor for the damage incurred’.

This allowance, however, comes at a cost, with the government introducing legislation that will make it a criminal offence for auditor to ‘knowingly or recklessly’ give an incorrect audit opinion.

Recent recommendations from the audit quality forum also had a mention in the bill, with the government welcoming the recommendations on publication of engagement letters, shareholders’ questioning of auditors, resignation statements and identifying the audit partner.

It mentioned that the DTI and the Financial Reporting Council are taking these initiatives forward, and it is the intention that any changes in law required by these recommendations will be included in the bill at a later date.

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