Sir: In his letter (16 September) Austin Mitchell, MP, argued that there was no case for any liability concessions to audit firms and that any such concessions will further reduce the incentive to do good audits. As you might expect, I disagree.
The main public interest must be in the quality of audits and it is right that auditors should be liable to the extent of their responsibility for any losses that may have been suffered. The present method of determining liability, under which auditors are held jointly and severally liable with other parties, is, however, fundamentally unfair in that auditors can end up being held financially liable, not only for their own mistakes, but also for the mistakes of others.
That is why we are seeking reform of joint and several liability and the right for auditors to be allowed under company law the normal commercial freedom to agree reasonable limits to their liability, subject to adequate safeguards for the interests of the shareholders. That is also the issue which we hope the Government will tackle and why we welcome the feasibility study by the Law Commission that has recently been announced.
The suggestion by Mr Mitchell that now is the time to end the accountants' statutory monopoly of external audits and invite banks, pension funds, financial institutions and others to enter the field also does not bear close examination if the objective is to ensure a good-quality audit. Auditing is a regulated and highly competitive activity in the UK and elsewhere in the European Union and can only be carried out by those with the requisite skills and training. To go the route he suggests would in no way serve the interests of the consumers of audit services.
The Institute of
in England & Wales
18 SeptemberReuse content