Audit firms dig in for a long haul

Accountants may be better off with slow reform. By Roger Trapp

The more that time moves on, the more obvious it becomes that the auditing profession's battle to win a quick solution to its liability problem was nothing more than a dream. Even the Jersey option, developed with the close involvement of Big Six firms Price Waterhouse and Ernst & Young, is proving more difficult to implement than was originally thought.

Though it may not look that way to them at the moment, all this may be to the accountants' advantage in the long run. By having the issue fully aired and debated, a change to the law - if it comes - will look more like a reasoned response to a business difficulty than a cave-in to a bit of special pleading.

Even accountancy profession insiders now admit that the campaign got off to a bad start - all those claims about the amount of money lawsuits were costing them were never going to get very far so long as the firms would give only scant details about their financial situations. Then there was the breaking of ranks - with KPMG opting to cut its losses by incorporating the audit arm (and announcing full company-style disclosure as a riposte to its critics) and PW and E&Y convincing Jersey of the wisdom of setting up a limited liability status similar to that which protects the Big Six's counterparts in the US state of Delaware. Touche Ross, meanwhile, has apparently sought competitive advantage in allying itself with the old ways and favouring neither of these options.

The Jersey parliament has passed the legislation in principle, and is now having to approve each part of the detail. Apparently, there are elements on the island that have cooled to the idea of big professional firms registering there in order to protect themselves from the calamitous effects of lawsuits, especially if the move is holding up the passage of other legislation such as the abortion bill.

This coolness is matched in certain corners of the mainland. No matter how hard the firms involved have protested that they will not be seeking to benefit from the other advantages that the Channel Islands have to offer, it is proving difficult for the firms involved to convince people that they are not just fleeing to a tax haven. It is believed that unhappiness with "the smell of it" in the City and elsewhere is behind the intervention of the Deputy Prime Minister, Michael Heseltine, after the Law Commission's feasibility study for the Department of Trade and Industry had seemingly left the accountants with little cause for hope.

It might also have something to do with the fact that various City bodies as well as industrial groups have added their voices to the clamour for reform. Last week, the Law Society - while backing the principle of joint and several liability - came out in favour of proportionate liability if both parties agreed to it.

As some senior accountants now accept, the profession should have sought a wider campaign from the start.If it had enlisted the support of other professionals it would not have been open in the same way to accusations of seeking a convenient get-out when those hurt by the spate of late 1980s corporate collapse were seeking people to blame.

Now, according to Roger Hughes, head of audit at PW, the firms are digging in for a long haul. He and his fellow audit chiefs are meeting at regular intervals to keep the campaign going. Last week, two of their number addressed one of the regular meetings of the leading firms' senior partners to tell them of the current position. To judge from the fact that Graham Ward, a PW partner who is chairman of the Institute of Chartered Accountants' professional liability steering group, was also there, it seems that there is also likely to be closer co-operation between the two lobbying efforts.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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