The accounting companies, and particularly the Big Four firms, have celebrated small victories in both the U.K. and Brussels in their long-drown battle to win a Europe-wide cap on the liability auditors are engaged in for checking the books of publicly traded companies.
The Big Four -- PricewaterhouseCoopers, KPMG, Deloitte & Touche LLP and Ernst & Young LLP – would like such caps being imposed around the world because they say they face potentially crippling legal liabilities from lawsuits related to audit work. Followed by the scandals like those involving Enron Corp. and WorldCom Inc., the industry’s campaign has not got a support in the U.S., and so the Big Four have focused on Europe.
The results so far have been controversial. The European Commission last year refused standing up for such caps in order to include them in a directive concerning auditors, while the U.K. government did not oppose a legislative plan that would have called for a statutory cap on damages related to audits, according to the Wall Street Journal.
The U.K. government has recently proposed new, draft legislation that would allow auditors to discuss with companies a cap on their liability. Such a cap, which the shareholders would have to approve, would be based on their proportionate responsibility for any losses that took place as a result of their audit work.
"This means the courts will only award against the audit firm that part of a total loss that it judges to be due to the audit," said Neil Lerner, global head of regulatory services at KPMG LLP in London in an interview wiyh the Wall Street Journal. That will change the current situation, in which auditors can be forced to pay all damages if other defendants are insolvent, he added.
Nevertheless the U.K. government is unlikely to introduce the legislation to Parliament until this autumn, which would be after general election expected to be held in May. Then the proposal should be approved by both houses of Parliament.
The auditors hope that a limitation on liability in the U.K. would promote similar changes in a European Union.