ICGN criticises EU auditor plans

News Article - 27 August 2008
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The International Corporate Governance Network (ICGN) has criticised EU plans which will limit the amount investors can sue auditors.

This move will reduce standards in accounting and encourage shortcuts, whilst failing to encourage competition in auditing, claimed the group of institutional and private investors, which over sees assets worth £7.5 trillion.

Charlie McCreevy, the internal market commissioner of the EU, published non-binding guidelines in June which would allow EU states to limit the civil liability of auditors in a move to encourage new companies to enter the sector.

Individual states were left to decide on a way of limiting liability.

"The ICGN appreciates the recommendation continues to allow member states to apply proportionate liability as the way forward," said the group in a letter to Mr McCreevy and Neelie Kroes, the EU's competition commissioner.

However, the ICGN claims that Mr McCreevy ignored the investment community's opposition to a quantitative cap.

"We advised that limiting auditor liability would reduce audit firm accountability, provide a market incentive to take audit shortcuts, and reduce overall audit quality," the letter continued.

It added that the guidelines will "protect the community of auditors, particularly the larger ones, to the detriment of other stakeholders and especially shareholders".

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