Auditor liability 'needs to be limited'

News Article - 20 December 2007
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The liability of auditors should be limited, the European Ccommission internal markets commissioner Charlie McCreevy has proposed.

In a parliamentary committee in Brussels, Mr McCreevy stated he will make the recommendation to member states during the first three months of 2008.

He explained that the proposal will not include enforcement of the limits but that each member state will decide how to reinforce the change.

"Existing solutions such as a liability cap, proportionate liability or indeed a contractual arrangement between the auditor and the audited firm would all seem adequate means to deal with this issue," added Mr McCreevy.

He explained that the recommendation is a result of the current concentration of the market, claiming that the Big Four account for 85 per cent of audits of EU listed companies.

Following a number of "catastrophic claims", Mr McCreevy expressed his concern that the current state of auditor liability risks losing major players in the industry and also deterring new entrants to the market.

His comments follow the Financial Reporting Council's publication of draft guidance on auditor liability. The consultation is expected to conclude March 14th 2008.

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