Deloitte And ICAI Respond To EC Audit Liability Recommendations

by Jason Gorringe, Tax-News.com, London

12 June 2008

Deloitte Touche Tohmatsu and the Institute of Chartered Accountants in Ireland (ICAI) have separately spoken out to welcome the publication of an EU Commission Recommendation on limiting Auditor Liability.

According to the EC, the recommendation aims to encourage new entrants into the audit market and to protect European capital markets, by ensuring that audit firms remain viable in an environment where there is an increasing trend towards litigation and a lack of sufficient insurance cover in the sector.

The recommendation also proposes principles to be followed by member states when adopting it, including limitations not applying in the case of intentional misconduct on the part of the auditor, and a right to fair compensation by damages parties.

Deloitte on Monday expressed the belief the European Commission gave "very careful consideration to issuing this recommendation", and suggested that "it will help achieve the Commission’s goals and objectives".

Also commenting on the development, ICAI Director of Representation and Technical Policy, Aidan Lambe stated that:

“This is a welcome recommendation not because it benefits individual players within the audit market but because it puts the safety of the market first."

"It recognises the fact that the increase in size, complexity and volatility of the capital markets lead to even the largest audit firms, almost uniquely unable to limit their liability, and are faced with uninsurable risks. This is an impediment to competition in the market and would place the continuity of services at risk were a claim to undermine one of the larger audit firms."

He continued: "This is a Recommendation not about audit firms or individual audit partners, it is a Recommendation aimed at safeguarding the audit market."

"The ICAI also accepts that a limited liability regime should not apply in cases of intentional breach."

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