Battle over US liability limit hots up

A US accountancy body has reignited the debate over limiting auditors’ liability in its submission to a committee investigating the sustainability of the profession.

The Centre for Audit Quality, which represents around 800 US audit firms, including all of the six largest firms, has written to the US Treasury’s Advisory Committee on the Auditing Profession, urging it to make ‘substantially more progress’ over its recommendations on limiting auditor liability.

The committee was created last year under the chairmanship of former SEC chief Arthur Levitt to look into measures that could help sustain the profession amid worries over the possibility of another audit firm collapse similar to Andersen in 2002.

In a letter to the committee, the CAQ says: ‘We believe that catastrophic liability remains the single greatest threat to the auditing profession’s sustainability. If this liability concern is not addressed, many of the Committee’s other recommendations will prove unworkable due to the current litigation context.’

It adds that it fears the committee ‘may be swayed to inaction by arguments that link high audit quality to auditor liability and the notion that massive litigation exposure is in some way beneficial to the profession and to the capital markets and investors.’ The CAQ complains that to suggest auditors will not perform well unless faced with unlimited liability is a ‘totally unsupported assertion’ that does a ‘disservice to the audit profession, investors and the capital markets’.

The CAQ argues that the growth in auditor liability reflected audit client capitalisation and not auditor misconduct.

Its comments came in response to the US Treasury committee’s second draft of proposals published in July.