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Audit firms pin hopes on E&Y case.

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PositionLIABILITY - Ernst & Young

The High Court battle between Equitable Life and Ernst & Young underlines the necessity for a change in the law relating to auditor liability, according to a leading audit expert.

Peter Wyman, head of professional affairs at PricewaterhouseCoopers, hopes that the case, in which Equitable Life is bringing a 2bn [pounds sterling] negligence claim against its former auditor, will increase the momentum for a legal change that will allow audit firms to negotiate the extent of their liability for the first time.

Under the current "joint and several liability" rules, an auditor found to be at fault by the courts in a negligence case can be forced to foot the entire bill for damages awarded, even if its role in the case is only minor.

"Auditors and directors aren't allowed to limit their liability by contract or by any of the means available to most people, which leads to the commercial problem that they can't get insurance," Wyman said. "That's not sustainable and it could take out an audit business at any time."

In March the secretary of state for trade and industry, Patricia Hewitt, bowed to pressure from auditing firms and the ICAEW by announcing proposals to...

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