OFT defends cap report
The Office of Fair Trading continued to back its report into auditor liability this week, despite growing claims from the accounting and insurance professions that it is fatally flawed.
Link: Liability special report
Aon, the second largest insurance broker in the world, told Accountancy Age that the Big Four firms were ‘separate from the rest of the market’ in terms of being able to secure indemnity insurance.
‘(The Big Four) have their own captive insurance companies for general claims,’ said Geoff Morris, deputy chairman of Aon Professional Risks. ‘But they cannot secure reinsurance for the big claims by household names. The OFT has either ignored this or just didn’t understand the complexity of insurance for the Big Four.’
Last week’s report found that the potential introduction of a liability cap, if carefully chosen, would be competitively neutral. But it also dismissed several key arguments the accounting profession made over the possible collapse of another big firm.
The report also suggested there was no evidence that the UK courts had made, or were likely to award, ‘excessive damages’ against auditors, at a time when Ernst & Young is facing a £2.6bn lawsuit for its role as auditor in the Equitable scandal.
But even this conclusion misses the point, according to one expert. ‘Without a cap, even the outside risk of a catastrophic court judgement means auditors will remain vulnerable to having to make large payouts even when the merits of the case don’t justify it,’ said Jane Howard, partner at law firm Reynolds Porter Chamberlain.
PricewaterhouseCoopers partner Peter Wyman labelled the report ‘sloppy’, and argued that the government would not be able to take anything useful from it.
The OFT, however, refused to concede that the report may contain errors. It said timing constraints meant it had not been possible to gather new evidence and that the conclusions were drawn from currently available evidence, including submissions from the government’s consultation.
‘We are aware that the Big Four use captive insurance companies, but this does not undermine our analysis,’ said an OFT spokeswoman. ‘Third parties who wish to disagree with our position should make their case to the DTI.’