Soaring legal claims 'could bring down auditing firms': Report says accountants need restricted liability lifeline

AT LEAST one of the UK's largest accountancy firms is at risk of collapse under the weight of spiralling legal claims, according to a report submitted to the Department of Trade and Industry as part of the profession's campaign to reform the law on auditors' liability.

The report, published yesterday, says the dramatic rise in the number and value of law suits against leading firms means that outstanding claims vastly outweigh their assets and insurance cover. A 'lifeline of hope', through an ability to restrict liability, is essential, it says.

Accountants would ideally like a reform of the law on joint and several liability, under which - as the people perceived to have the deepest pockets through insurance cover - they are held liable for all the damages resulting from a corporate failure. But realising that this would take some time, they are arguing for a change to the 1985 Companies Act that would allow them to limit their liability by contract with their clients - as is permitted for other professionals.

According to records compiled by Minet, the professional indemnity insurance broker that produced the report, only three claims were reported by the big six firms in 1982/3. But by 1992/3 this had grown to 210, with more than 600 remaining open at the end of the year.

The estimated average value of the largest three claims - apart from those arising from the BCCI collapse, which has brought dollars 8bn writs against Price Waterhouse and Ernst & Young - has risen 12.5 times over the same period.

Brandon Gough, outgoing chairman of Coopers & Lybrand, the UK's largest firm, said the issue was so serious that highly competitive firms had decided to collaborate to find a solution. The Institute of Chartered Accountants in England and Wales had also assigned a working party to the issue. Its report, which is understood to have broadly similar conclusions, will be debated at next Wednesday's council meeting.

'This is not another wolf-crying occasion,' Mr Gough said. 'We cannot afford to let it go. We've got to press for some action.'