OFT: There's no competition
We may have been a little hasty last month when we described the outcome of the Office of Fair Trading's investigation into the question of auditor liability as a foregone conclusion.
After sparing barely three weeks for the OFT to conduct its review, we suggested that the government had already made up its mind to proceed with a cap, and was merely asking the OFT to support its case by looking into whether the change would throw up any competition issues.
Most of us interpreted that as setting the OFT the task of examining whether a cap would harm competition. The OFT took a different view, finding that a cap would do nothing to enhance competition. With a tone that was hardly supportive either, it put the ball firmly back in the government’s court.
Since the OFT’s report was published earlier this month, firms, regulators and insurers have been pouring over the document, looking for hints and nuances that support their cases.
Last week ICAEW chief executive Eric Anstee wrote to the OFT demanding that it formally correct inaccuracies in its report. Anstee disputes the assertion that professional indemnity insurance capacity and premiums are expected to improve in the medium term. He also accuses the OFT of ignoring evidence from the upper mid-tier firms, which argue they are reluctant to audit larger public companies because of the potential exposure.
All this may or may not be true. But at this stage of the debate it has the misfortune of sounding like sour grapes, especially as it seems the Treasury has no appetite for effecting a change.
Even if the OFT had added its weight to DTI support for a liability cap, little progress could have been made without Treasury backing.
However, the Treasury has never shown an appetite for a cap, though some expected it to relent if the OFT had offered unequivocal support. Mandarins do it seems see more merit in proportionate liability, where an audit firm’s penalty is linked more to the responsibility it bears.
Nevertheless limiting auditor liability remains a contentious issue. It would be met with the sort of headlines the government could well do without. As one senior supporter of a cap explained this week, it’s easier for ministers to do nothing as they have nothing to gain. ‘How many votes would they win by doing it and how many would they lose by not doing it?’ That, unfortunately, is the real question.
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