There is little appetite to limit auditor liability as part of new European reforms, the head of the UK’s reporting regulator has said.
Financial Reporting Council (FRC) chief executive Stephen Haddrill said he has come across little support for reform to auditor liability rules – an issue auditors have insisted upon if they end up taking on more risk as part of mooted reforms.
The FRC has embarked on a whirlwind tour of Europe to garner support, as the European Commission decides on how best to reform the audit industry in the wake of the crisis.
The Commission is considering a radical restructure of the audit industry including a new regulator to appoint firms, mandatory rotation and caps on advisory fees. The commission has also proposed European-wide registration, and is considering forcing firms to hive off their audit arms, amid a raft of new proposals to shake up the industry.
There are also suggestions auditors provide assurance on forward-looking information and company business models, however auditors argue this must be coupled with reform to liability regime.
At present auditors carry unlimited liability, which, in a worst case scenario, could bring down an entire firm in a major litigation.
Last week KPMG said liability reform was a “pre-requisite” in its submission to the European Commission while PwC senior partner Ian Powell commented in April that “restriction of liability on the audit practices” should be talked about along side any reform to audit.
Haddrill however said he has found little enthusiasm.
“If we are going to ask auditors to do more we have to ask whether the liability regime will support it at all, but I have to say I don’t detect any political enthusiasm to do anything in this area,” Haddrill said.
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