PracticeAccounting FirmsCapping liability

Capping liability

Every so often the subject of capping auditors' liability surfaces. Audit firms - especially the Big Four - support this, believing they are seen as having deep pockets and, when everyone else has abandoned a failed company, the knee-jerk reaction of many a shareholder, creditor or executive is to sue the people who signed off the accounts - whether they were lax or not.

It’s no surprise given the events of the last 18 months that the question of whether to cap has resurfaced. This time round there are suggestions that the government and Brussels are more receptive to the idea. It is a move that would be fiercely resisted in many quarters, particularly after auditors have made other moves seeking to limit their liability in recent weeks.

But accountancy firms have argued that the alternative is worse. Smaller firms’ insurance premiums will be unaffordable; the bigger players will abandon commercial insurance as they would be uninsurable and audit fees would rise significantly.

It is by no means a certainty that capping will be introduced. But if there isn’t the appetite today, perhaps there never will be.

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