The UK’s Big 4 have been left feeling somewhat exposed after the Labour Government refused to limit litigation damages. The firms lobbied hard for a cap on payments, to no avail. Some of the firms are now facing massive lawsuits relating to the Bernard Madoff $65bn fraud. Auditors can be held liable for the full amount of losses when a company collapses, even when they are only ‘partly’ to blame.

Accountancy representative met with Lord Mandelson recently in the hope of making him introduce a new capped liability system. The firms apparently warned there was a real possibility that another big firm could go bankrupt (after all it happened to Arthur Andersen).

A Department of Business, Innovation and Skills has said that the 2006 Companies Act already allows auditor liability limitations ‘where companies and their auditors want to take this course’. However while in theory directors can agree to restrict their auditors’ liability if shareholders approve no blue chip company has gone down this route, What would be the benefits to any company agreeing such a move!

The US Securities and Exchange Commission also opposes caps as they believe it could lead to secret deals that would compromise the oversight of company accounts.

see more at www.pqaccountant.com

30-10-09