Ahern Orders Review Of Auditor Liability

by Jason Gorringe, for LawAndTax-News.com, London

05 January 2007

Ireland's Minister for Trade and Commerce, Michael Ahern on Wednesday confirmed that he has asked the Company Law Review Group (CLRG) to examine the question of auditor liability in the context of the existing legal framework in Ireland, and with reference to a recent report commissioned by the EU on the impact of auditor liability regimes.

The EU report entitled “Study on the Economic Impact of Auditors’ Liability Regimes” examined the economic impact of current EU rules on auditors’ liability regimes and on insurance conditions in Member States.

Minister Ahern explained that:

“The publication of this EU Report opens the debate on the situation on auditor liability generally and with reference to individual Member States."

He pointed out that with only four large global players in the audit market, a single case taken against even one of these could have the capacity to bring down that firm and thereby reduce choice in the audit market, in addition to the tremor which such a development would create in the audit profession and the wider corporate sector.

“Ireland’s successful inward investment thrust and thriving financial services sectors has not, and cannot, survive without a competitive auditing services infrastructure,” Minister Ahern reflected.

Currently in Ireland, statutory auditors are prohibited from exempting or limiting liability in respect of audits carried out, or from obtaining an indemnity from the companies being audited.

This, in addition to a ban on corporate bodies acting as auditors and the legal principle of joint and several liability leaves Irish auditors potentially accountable on a personal basis for losses not just arising from their own actions or omissions but also for those of persons - for example company directors - who may be significantly responsible for such losses, but who do not have the resources to meet claims against them.

In summary, the position at the moment is that, arising from these circumstances, the auditing profession in Ireland is the only profession that cannot limit its liability under domestic law.

“In referring this matter to the Company law Review Group,” Minister Ahern clarified “broadly speaking, I have requested CLRG to develop an understanding of the issues associated with the current regime of auditor liability in Ireland, and to consider whether this is in need of reform, having regard to the policy issues and other considerations that are relevant, including those concerning the continuity of supply of audit services to the Irish economy”.

Minister Ahern also confirmed that the Investment Funds, Companies and Miscellaneous provisions Bill 2006 was signed into law on the 24th December 2006.

This, among other things, provides for a significant increase in the relevant financial thresholds of companies at which audits require to be carried out. The new levels are EUR7.3m. (turnover) and EUR3.65 (balance sheet), which replace the previous figures of EUR1.5m. and approx EUR1.9m. respectively.

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