View from City Road: PI cover a threat to credibility

Why would a company want to buy professional indemnity insurance for its own auditors?

The present spate of companies urging their shareholders to approve such a move seems bizarre in the extreme. Shareholders, after all, are not unknown to take their own legal action against auditors for negligence.

Vaux Group shareholders agreed in January to enable the company to provide PI for its auditors. Now Unilever wants to do the same thing. Apparently, PI cover is cheaper if purchased case by case, as opposed to insuring against negligence for all an accountancy firm's work. The audit fee might reasonably be expected to be lower for companies that approach the problem in this way. Some kind of a solution to spiralling PI rates, perhaps, but the idea is at best odd, and at worst a threat to any credibility that company accounts now have. Shareholders should turn it down.