The right to sue auditors for negligence should be extended to include future shareholders and creditors who rely on company accounts, the latest Company Law Review consultation has recommended.
The move would reverse the landmark Caparo judgement, which restricts auditor liability to current shareholders.
The proposals emerged in a consultation document from the DTI independent steering group responsible for the wide-ranging Company Law Review.
It also recommends an equally radical plan to allow auditors to agree a cap to their liability.
Deloitte & Touche chairman Martin Scicluna, who led the group which developed the plan, said: ‘There is no reason why auditors should not cap their liability. The guy with the deep pockets ends up with a disproportionate share of the damages award.’
Roger Davis, PwC senior partner and a member of the DTI company law consultative committee, said: ‘A narrow interpretation of the audit role is unlikely to be sustainable, legally and otherwise, in 21st Century business.
‘If auditors are to remain at the top table of business and society, they should be prepared to go with the grain of the law review on future-based information and accountability of companies to a wider community.’
An operating financial review would cover all that is material in the directors’ review to make a proper assessment of the performance and future plans and prospects of the business.
Additionally, the group has proposed that listed companies should prepare a set of statutory accounts whose content would be based on the present preliminary results and sent to all shareholders.
A full report and accounts, to be filed at Companies House, would also be available to shareholders on request.