Mario Christodoulou, Accountancy Age, Thursday 16 September 2010 at 10:24:00

?I understand the argument but I don?t see rapid change there,? Baroness Hoggtells Accountancy Age


The head of the UK?s reporting regulator does not foresee ?rapid? change toauditor liability rules, despite industry calls for reform.

Baroness Hogg, chairman of the Financial Reporting Council (FRC) describedthe liability dilemma as ?not an easy one to solve? and believes there will beno immediate change in the area.

?What happened last time the debate went through suggests this isn?t an easyone to solve,? she told Accountancy Age.

?I understand the argument but I don?t see rapid change there.?

There?s been little movement on the auditor liability issue since 2006 whenthe government introduced new laws permitting limited-liability agreementsbetween auditors and their clients. The industry had argued it was exposed tounlimited liability which could, in a worst case scenario, bring down an entirefirm following a major single litigation.

However, no major company has ever entered into an agreement, according tosenior auditors, which has led to the widely held view the laws failed.

The issue has leaped back on the agenda since the crisis, with seniorauditors offering to provide more expansive opinions on once off-limit areaslike business models, risks and forward predictions in exchange for liabilityreform.

In April, PwC UK?s chairman and senior partner Ian Powell said any discussionof audit reform had to occur along side liability reform.

?We can have any debate, certainly on respect of an audit practice, where wedon?t talk a little bit about the liability risk and the restriction ofliability on the audit practices,? he said.

In April, Graham Clayworth, audit partner at BDO, said the profession wouldbe willing to provide assurance around ?front-of-the-book? narrative disclosuresif there was reform to liability.

?The concession that the profession will have to make for additionalliability limits will be to extend work that the auditor does at the front ofthe book,? he said at the time.

However, Lady Hogg?s comments will likely dampen spirits in an industry thatis hopeful audit reform would be coupled with liability reform. It also raisesthe prospect of auditors left exposed to greater litigation without anylegislative protection.