Reform means audit fees should fall: minister

Minister for industry Alun Michael has said he expects to see audit fees drop
after the government granted auditors their much sought-after limited liability.

The company law reform bill was introduced to parliament last week giving
auditors the ability to negotiate proportionate liability with their clients. As
a result, Michael warned that some form of ‘quid pro quo’ was anticipated in
terms of falling fees.

‘I don’t want to enter into other people’s business, but you would expect a
quid pro quo between the extent of liability and, if risk is lower, people
generally charging less for taking that risk,’ said Michael. This view, however,
was quickly rejected by members of the profession.

‘We are not expecting to be removed from liability through these provisions,’
said Peter Wyman, head of professional affairs at PricewaterhouseCoopers. ‘This
is protection against catastrophe, we will still be liable for all the things
that we are paying out at the moment.’ This view was backed by Ernst &
Young.

The government also expects the introduction of limited liability to reduce
the number of cases brought against auditors, as it will assist in the
negotiations for settlements.

Investor groups, which initially opposed the move, have been placated by the
inclusion of clauses that reinforce the concept of the ‘true and fair’ audit.

Shareholders had been concerned this principle was being watered down by the
introduction of international accounting and auditing standards and European
directives.

In another victory for the profession, auditors will no longer face a jail
sentence for ‘knowingly or recklessly’ giving an incorrect audit opinion, with
the fiercest penalty reduced to an unlimited fine.

Conservative MP Mark Hoban expressed concern that the fine might be
‘replacing one form of unlimited liability with another form’.