Auditors’ liability cap proposals don’t go far enough, says institute

The proposals came yesterday as a DTI steering group responsible for the company law review said auditors should be able to negotiate a legal cap to their potential liabilities when undertaking audits.

An institute statement published in the wake of this said:’The institute welcomes proposals to:

Repeal S310 of the Companies Act 1985 which prevents contractual arrangements between companies and auditors to limit their liability

Enable steps to be taken by auditors to limit their liability in tort to third parties.

Require shareholders approval for the arrangements that limit liability.

Introduce rebuttable statutory presumption that auditors liability would be reasonable if it complied with guidelines.

Impute fraudulent or negligent actions of directors or employees on the company.

The risk remains, however, that where the company or others are insolvent, the auditors continue in effect to be the credit insurer for those parties. This risk is not part of the auditor’s professional duty.’

Graham Ward, deputy president of the institute, added: ‘The best incentive for companies to be well run, advised and audited, is for all parties to be responsible for their own actions and not to be required to subsidise those of others.

‘Statutory proportional liability remains the best solution and should be considered further.’

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