Brussels, 06/10/2006 (Agence Europe) - On Wednesday 5 October, the Commission published an independent study by London Economics on auditors' liability regimes and on insurance conditions in Member States. The study comes down in favour of limiting auditor liability. Such limitation would not affect audit quality nor capital costs, would favour the appearance of new competitors and would lighten the financial threat of complaints aimed at the four main international audit companies (the “Big 4”: KPMG, Ernst & Young, PwC and Deloitte). Under Directive 2006/43/EC on statutory account auditing, the Commission will publish a working document by end 2006 based on this study, in which it will put forward a number of possible solutions. It recalls that a European forum on the liability of auditors has been in place since 2005 (see EUROPE 9068).
The study highlights four major problems facing the auditing sector: 1) The international market for statutory audits of large and very large companies is highly concentrated and dominated by the Big-4 networks, and the likelihood of new entrants into this market is very limited in the coming years. 2) The current level of auditor liability insurance available only covers 5% of the higher limits complaints against these firms. Currently within the EU, certain audit firms face eleven complaints ranging from €160-785 million, five complaints being above €785 million. 3) The failure of an auditor network could lead to difficult consequences for the financial markets in general and for the ability of a company to meet its statutory auditing obligations. 4) A limitation on auditor liability could reduce this risk. Given the diversity of national situations, the study does not believe a “one-size-fits-all” EU approach would be useful.
Within the EU, only five Member States (Germany, Austria, Belgium, Greece and Slovenia) have a national regime that limits auditor liability. The United Kingdom is in the process of amending its legislation with a view to allowing audit firms to negotiate proportionate liability agreements with their clients. In a press release, the Federation of European Accountants (FEE) welcomes the publication of this study. It urges for a European Commission and Parliament “recommendation” addressed to Member States so that they may tackle problems of auditor liability “as a matter of urgency”. (mb)