ACCA Backs EU Review of Audit Liabilit

Any reform should not restrict the rights of shareholder bodies and other legitimate plaintiffs to bring proceedings against a negligent auditor,” added Davies. “It should, rather, aim to ensure that the auditor is not seen as the guarantor of shareholders’ losses, as has effectively been the case in the past. Any EU-wide reform should also be broadly-based and ensure a level playing field for the audits of quoted and unquoted companies alike.”

ACCA accepts the principle of proportionate liability, assuming that an auditor is guilty of negligence, that this causes an economic loss and that the courts uphold a liability responsibility upon the auditor. Proportionate liability is “fairer than a monetary cap”, says the ACCA submission.

Proportionate liability is also consistent with the reality that the auditor is never the only party involved in a financial mis-statement. It must always be remembered, says ACCA, that “the management of the audited company has its own separate legal responsibilities in relation to the preparation of the accounts” and that, inevitably, “the management will be at fault” for any defect in financial statements at least as much as the auditor, if not more so.

“For auditors to be liable not only for their own mistakes but those of others is, in our view, unsustainable,” the submission emphasises. “It has led to the creation of a situation whereby auditors are sued by plaintiffs not because they are the party that is considered to be the party most at fault but because, via the insurance cover that professional rules require them to hold, they are the party that is most likely to be able to pay.” The adoption of proportional liability would not prevent innocent plaintiffs pursuing legal action against others who might also have been negligent and partially responsible for a loss, points out ACCA.