EC recommends limited liabilty for auditors

The European Commission has recommended that member states limit the
liability of auditors to encourage growth of alternative firms in the
competitive market.

The recommendation follows consultation on the issue, and also responds to
the increasing trend of litigation against firms who are not sufficiently
covered by insurance that could prevent a network
failure.

The Internal Markets Commission, which made the recommendation, has left it
up to the individual countries to decide on how they will decide on the
appropriate methods of limiting liability with options including proportional
liability, capped liability.

Internal Market and Services Commissioner Charlie McCreevy said: ‘After
in-depth research and extensive consultation, we have concluded that unlimited
liability combined with insufficient insurance cover is no longer tenable. It is
a potentially huge problem for our capital markets and for auditors working on
an international scale. The current conditions are not only preventing the entry
of new players in the international audit market, but are also threatening
existing firms. In a context of high concentration and limited choice of audit
firms, this situation could lead to damaging consequences for European capital
markets.’

Further reading:

Liability deals ‘won’t happen’ without backing from SEC