The firms, for fairly obvious reasons, want to limit their exposure to audit
and they will be able to do that from October of next year when the Companies
Act comes in.
The question is: where will the liabilities be set?
That is a bit of a quandary for those at companies doing the negotiations,
whether it be the FDs, audit committees, or even shareholders (an issue in
itself). Where and why would you set the liability limit, when effectively you
are limiting your own ability to recoup losses caused by a negligent auditor?
Of course, the firms’ have an opposite interest, but at the same time, they
don’t have much of a hand.
What are they going to do if companies refuse to limit their liabilities?
There has been some suggestion they would walk away from audits. This is
Will E&Y tell BP it is no longer interested in the audit work? I don’t
Deloitte’s results last week showed they made £557m from audit, with profits
of £146m. The margins were not as good as in other sectors, but don’t believe
for a second that £4.6m man John Connolly is going to turn his back on those
Of course, liability limitations have long existed in other business lines
for the firms, but audit is different.
When you take on a corporate finance contract, it might be worth a few
hundred thousand for the next couple of months. When you take on a FTSE 100
audit, as Mazars have pointed out, you can expect to stay in place for 48 years.
It’s too attractive a deal to turn down on liability grounds.
Alex Hawkes is news editor of Accountancy Age
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