PracticeAuditWill the cap ever fit?

Will the cap ever fit?

Are we ever going to see auditor liability caps made effective?

News emerged last week that US authorities have vetoed the idea for the
auditors of US registered companies ­ even foreign registrants.

This will mean few companies in the UK are likely to sign deals with their
auditors, despite legislation permitting such deals here in the UK.

This is bad news. The US stance is probably political ­ or to put it another
way the regulators and lawmakers across the pond have shied away from being what
might be viewed as being soft on auditors when the country is caught in the
midst of an economic firestorm. After all, if you invest in a company and it
abruptly goes the way of all thing you’ve got to have someone to sue. Right?

And that has been the point of auditors all along. Regulators, politicians,
investors, even journalists, have an unspoken expectation that the big auditors
will underwrite the world’s financial markets.

Is that fair? Even if you take the harshest view of auditors that kind of
position cannot be justified. What about the executives what about the investors
that exert such pressure for short-term gains? Surely they carry just as much
responsibility? But the auditors have deeper pockets.

The irony is that liability caps were introduced to reduce the risk to
auditors and thus encourage more to move into the Big Four market. It was
protective ­ but for good reason. We need more auditors so that if one falls
over we don’t create a conflicts of interest crisis on a global scale. No one
said auditors shouldn’t be liable, just not for everything.

Auditors will now campaign for a law making caps mandatory, setting up a
conflict with investors who don’t like the idea. The debate is about to enter
its next chapter with little sign of a resolution. That’s not good for global
markets.

comment@accountancyage.com

Related Articles

KPMG South Africa to review past audit work amid fresh scandal

Audit KPMG South Africa to review past audit work amid fresh scandal

1w Alia Shoaib, Reporter
FRC introduces £10m sanctions for Big Four firms

Audit FRC introduces £10m sanctions for Big Four firms

2w Alia Shoaib, Reporter
Ukraine’s PrivatBank files $3bn claim against PwC

Audit Ukraine’s PrivatBank files $3bn claim against PwC

3w Alia Shoaib, Reporter
Grant Thornton to exit FTSE 350 audit market, citing Big Four dominance

Audit Grant Thornton to exit FTSE 350 audit market, citing Big Four dominance

3w Alia Shoaib, Reporter
Big Four dominate FTSE 250 audit market in Q1 rankings

Audit Big Four dominate FTSE 250 audit market in Q1 rankings

2m Alia Shoaib, Reporter
Deloitte to pay $149.5m over Taylor, Bean & Whitaker audit failure

Audit Deloitte to pay $149.5m over Taylor, Bean & Whitaker audit failure

2m Alia Shoaib, Reporter
Carillion inquiry: missed red flags, aggressive accounting and the pension deficit

Audit Carillion inquiry: missed red flags, aggressive accounting and the pension deficit

2m Alia Shoaib, Reporter
Deloitte’s audits of Hezbollah-linked bank to be examined by Dubai court

Audit Deloitte’s audits of Hezbollah-linked bank to be examined by Dubai court

2m Alia Shoaib, Reporter