PracticeAccounting FirmsLiability fears may force audit exodus

Liability fears may force audit exodus

Auditor liability must be capped at a realistic level or auditors will simply withdraw from the market, a move that could lead to more corporate collapses, a leading UK auditor warns this week.

Writing in Accountancy Age Rodger Hughes, head of assurance and business advisory services at PricewaterhouseCoopers, says: ‘The capital markets cannot afford to have another major firm destroyed by the backwash of a corporate collapse. Neither can we risk a large firm withdrawing from the audit market because the rewards don’t justify the risks.’

Hughes says that long before the collapse of Enron and the breakdown of Andersen, PwC was ‘declining to act or resigning audits because our risk assessment was too high’.

He adds that PwC has already resigned from two audits this year. In February it resigned as auditor to P&P Designs, a clothes-importer, due to concerns over the company’s accounting policies.

For the capital markets, the benefits of capping auditors’ liability said Hughes would be more willingness on the part of auditors to extend the scope of their reporting beyond the statutory financial statements.

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