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Government rejects auditor liability cap.

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PositionRegulations Update

The secretary of state for trade and industry, Patricia Hewitt, has dashed the hopes of audit firms that have been seeking the introduction of a limit on their liabilities in the companies (audit, investigations and community enterprise) bill that's currently going through Parliament.

In a written statement released last month, Hewitt revealed: "I have decided not to bring forward amendments to the current bill to extend an auditor's duty of care."

Although many of the bill's provisions do address auditors' independence and responsibilities, the minister rejected pleas from large accountancy practices to allow them to negotiate ceilings on their liabilities with clients.

Hewitt explained that, in the light of the Office of Fair Trading's recent conclusion that introducing a cap would not significantly enhance competition, she was "against proposing changes to the law on this". She added that the government was still committed to improving the operation of the audit market and would continue considering any suggestions that would help to achieve this, including the possibility of limiting liability on a proportionate basis by contract.

The minister said that she was coming round to the view that proportionate liability could enhance competition and improve quality...

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