Legal review team proposes limited liability for auditors

The review of company law set up by the Government is to propose making auditors liable to their clients' future shareholders and creditors.

The review of company law set up by the Government is to propose making auditors liable to their clients' future shareholders and creditors.

The proposal came in an interim report by the independent team responsible for the Government's Company Law Review, which was published yesterday. The report said that auditor liability, currently restricted to existing shareholders, should be extended to future or potential shareholders and creditors who rely on the accounts. In return, auditors would, for the first time, be able to limit their liability contractually, by setting down a maximum sum they are liable for.

Under the proposals, auditors would also have a responsibility for signing off a new annual operating and financial review that would be required of companies. This would cover a broad overview of a company, such as explaining its strategy, performance and relations with staff, customers, suppliers and the "wider community".

Roger Davis, a partner at PricewaterhouseCoppers, the business services firm, said: "This is an opportunity for the [auditing] profession to come out of the box. A narrow interpretation of the audit role is unlikely to be sustainable, legally and otherwise, in 21st century business. This is a once in a generation opportunity to update company law."

The review will consult further and will make its final report to the Department for Trade and Industry next year.

Stephen Byers, the Secretary of State for Trade and Industry, yesterday welcomed the report. He said: "Our company law has evolved, over more than 150 years, to meet the needs of large public companies. It does not fully meet the needs of the vast majority of small companies."