Seeking to cap their liability when a company implodes on their watch, accounting firms in the United Kingdom and throughout Europe were disappointed last week by the U.K.’s decision to delay action on proposals to limit auditor liability, the Wall Street Journal reported.
U.K. accounting firms have been trying for nearly a decade to get liability protection and the delay is a setback to accounting firms across the European Union that had been closely watching the U.K.’s action hoping it would begin a trend across Europe.
The meltdown of companies such as Enron in the U.S. and Parmalat SpA in Italy have caused accounting firms to seek protection against rising litigation risks and the difficulty and cost of insuring against such potential damage claims, the Journal reported.
The Big Four firms—PricewaterhouseCoopers, KPMG, Deloitte & Touche and Ernst & Young—say that a huge damage award in a lawsuit could further thin their ranks and lead to less competition for corporate-audit work, the Journal reported.
Governments have been slow to enhance protections for the profession that investors rely upon to ensure that corporations are truthfully reporting their financial condition. In the U.K., two large fund managers—Morley Fund Managers and Hermes Investment Management—publicly have opposed capping auditors' liability, saying it would undermine investor safeguards, the Journal reported.
The U.K. government will ask the Office of Fair Trading to review any possible competition implications that could arise from a liability cap, the Journal reported.