US concerns grow over audit disclaimers

Link: Big Four limit audit liability

There has been no official response from the SEC, but if the watchdog does outlaw them it could have a significant impact on half of the UK’s biggest companies which also trade their shares in the US.

The disclaimers, already adopted by PricewaterhouseCoopers and Ernst & Young limit the firm’s accountability to shareholders and those people ‘where expressly agreed by [the firm’s] prior consent in writing’.

It is aimed at preventing firms being sued by third parties, such as banks, if fraud is discovered at a company.

However, according to the FT the SEC may ban such disclaimers in the US because they could go against regulations which say that an audit firm is not solely engaged for the benefit of shareholders.

Recently the ICAEW told its members to add the following disclaimer to their audit reports.: ‘To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body for our audit work, of for the opinion we have formed.’

The institute claims the disclaimer will help ‘clarify auditors’ responsibilities’.

Related reading