Big Four await liability cap verdict: the DTI is under pressure to limit the burden on audit firms.

AuthorLoxton, Liz
PositionCorporate Governance, Department of Trade and Industry

The secretary of state for trade and industry, Patricia Hewitt, is thought to be close to deciding whether provisions to cap auditor and director liability will he enacted or not.

A spokeswoman for the Department of Trade and Industry said the DTI was making good progress on considering responses to its consultation on limiting auditor and director liability, and that it hoped to make an announcement shortly.

The Big Four have been lobbying hard for the repeal of section 310 of the Companies Act 1985, which prevents an auditor from contracting with a client to cap liability. Peter Wyman, head of regulatory affairs at PricewaterhouseCoopers, warned that retaining unlimited auditor liability would weaken the market for audit, especially for larger companies.

"A definite consequence is that you would see some of the mid-tier firms moving downwards in terms of the size of companies that they would audit," he told Financial Management. "This would lead to the even greater predominance of Big Four audits for listed firms."

Wyman said that unlimited liability, combined with growing calls for the external audit of non-financial information...

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