'A moral hazard.' That was how Mary Francis, director general of the Association of British Insurers, described a cap on auditors' liability last week. Strong words indeed, particularly coming as they did in the wake of clear signs from DTI minister Jacqui Smith that a cap, pending OFT approval, was likely to go ahead.
Investors, and their professional bodies, have consistently argued against a cap. But as tempting as it may be for auditors to shrug their shoulders at Francis’ comments, research now shows she is not the only one worried about the implications of such a move. This week’s Accountancy Age/Reed Finance Big Question found that nearly half of those FDs questioned believed a cap would be anti-competitive.
Gloomy predictions accompanied the results. ‘The big shall get bigger, the small get smaller and the professionalism of the audits shall deteriorate further,’ said one clearly disillusioned FD. Another added: ‘The only people to benefit would be the large firms.’
These comments will hardly be pleasing for those who have argued for some time that a cap is needed to avoid the possibility of the Big Four turning into a Big Three. It is tempting to dismiss the comments as predictable and small-minded, but that would be a mistake. It’s clear that the Big Four have won a victory – but they must avoid gloating because, as our survey shows, the battle for client confidence may have only just begun.
Firms must now demonstrate to their clients that the cap will be worth it and that auditors can add value, provide quality, and contribute to the business in ways that go beyond simply ticking off the accounts. Reassurance will need to be plentiful and fast. This is no time for auditors to sit back and revel in triumph.