PwC rewrites the auditors' rulebook with disclaimer to reduce liability

By Nigel Cope,City Editor
Friday 06 December 2002 01:00
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Britain's biggest accountancy practices are expected to introduce a disclaimer in company accounts that will limit their liability after an early move by PricewaterhouseCoopers.

PwC is changing the wording of its standard audit opinion at the end of company accounts in order to avoid potential legal action from lenders to companies that later collapse.

The change follows a landmark legal ruling in Scotland which appeared to allow banks to sue auditors of a bankrupt company to reclaim lost loans. PwC, whose audit clients include BT, Tesco, J Sainsbury and Debenhams, is introducing the changes with immediate effect. Ernst & Young and Deloitte & Touche both said they were "considering a number of options", though both are expected to follow suit. The changes would then virtually become an industry standard.

The changes were criticised by some finance directors who said the disclaimer would limit the risks auditors are paid to take. Others pointed out that the ruling in Scotland had no standing in English law. One finance director of a FTSE 100 company said: "It's part of a long-term trend of the auditors unrealistically trying to distance themselves from the job they're appointed to do."

Matthew Roberts, finance director of Debenhams, said non-executive directors may now feel more vulnerable. He said: "This move by the accounting industry will lead to a further debate about the interface between auditors and audit committees."

Explaining PwC's decision, Glyn Barker, of the firm's UK assurance and business advisory services division, said: "All we are doing is making a distinction between those people to whom we do owe a duty of care and those to whom we don't. We're not restricting our liability but we're not extending it."

PwC will add an additional sentence to the end of the accounts, which currently state them to be a "true and fair" reflection of the company's financial affairs. It will read: "We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or in whose hands it may come save where expressly agreed by our prior consent in writing."

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