ACCA welcomes Commission move on audit liability
ACCA has welcomed the European Commission's decision to launch a consultation paper on audit liability
19 Jan 2007
Roger Adams, Executive Director - Technical, said: "ACCA has consistently made the case for reform of the liability laws to prevent audit firms being potentially wiped out due to a catastrophic claim, which under the concept of joint and several liability they might have to pay the whole amount of, even if others were mostly to blame for a company collapse.
"We disagree strongly with those who say that it is only the threat of litigation that keeps auditors on their toes. Restricting liability will not reduce audit quality - on the contrary, it will in the long-term improve it by ensuring that audit firms do not drop out of the market due to unacceptable risk."
He added: "Ideally, our preferred option from the Commission's alternatives, would be a system of proportionate liability. Contracts entered into under such a system would establish a fairer basis for determining an auditor's liability for negligence since the new arrangements would implicitly provide for the responsibility of all parties involved in causing financial loss to shareholders to be taken into account by the courts. It would also level the global playing field for audit as firms do not have to compete on the level of liability cap.
"It must be remembered that the whole audit process exists to protect the interests of the company's shareholders. In view of this, it is vital that any initiative which would affect shareholders' rights of redress where they have suffered loss be made subject to their explicit approval. It is essential that the two sides enter into a liability limitation agreement freely and without undue influence from either side."