View from City Road: Auditors can afford to stand their ground

It is understandable that the auditors of Insurance Corporation of Ireland should settle out of court in a case over work done a decade ago. After all, an army of lawyers with a mountain of documents would probably have spent a significant chunk of Ireland's gross domestic product over the next two years arguing over the details. As the insurers were willing to pay Ir pounds 77m, there was no sensible reason for the partners of Ernst & Whinney in Ireland to resist an out-of-court deal.

But what looks right from the perspective of individual firms is wrong for the auditing industry. In 97 per cent of cases, auditors settle out of court, and it is more often than not under pressure from their insurers, who fear the unpredictability of legal costs in long trials and of the final awards by the courts.

There has been much talk of getting the Government to change the law so accountants would no longer bear liability for the whole of a loss suffered by a client, perhaps accompanied by a cap on damages that would be a multiple of audit fees. Miracles may happen, but in the meantime there is no substitute for good case law, if only more went to court.

The UK Caparo case narrowed the definition of an auditor's liability, proving that it is possible to make progress against an avalanche of claims by asking the courts to clarify the law. Abroad, Price Waterhouse has won a retrial of a dollars 338m award against it, in a US case brought by Standard Chartered. But actual US payouts last year totalled dollars 752m, 800 per cent up in two years.

Market forces may, however, force changes. Insurance cover is continuing to dry up. Mutual insurance is available through two schemes, Pail and Padua, but strains are said to be developing among member firms because of the sheer scale of claims.

If Price Waterhouse settles an dollars 8bn claim by the liquidators of BCCI in proportionately the same amount as the Dublin settlement, the cost would be more than dollars 600m. Soon, the big six firms may find it preferable to stand their ground more often. They would - in the end - benefit from a tougher stance. So would their clients: while auditing remains a legal requirement, insurance costs for professional negligence are merely passed on to the customer.

Start your day with The Independent, sign up for daily news emails
Sport
The Aviva Premiership trophy
rugby union All the latest from Twickenham
Life and Style
tech
Sport
Aston Villa manager Tim Sherwood
footballDanny Higginbotham: Tim Sherwood must play game of two halves to cause major upset
News
Caber is trained to help child victims of serious crimes testify
news
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor