Auditor liability limitation outside the UK
An overview of the law and attitudes to auditor liability in the EU, US and Australia.
On 6 April 2008 the European Commission issued a recommendation encouraging member states to limit auditor liability to promote competition in the market for listed entity audits.
We welcome this initiative, but we believe it should be extended to apply to all audits as it does in the UK.
The current position in Europe varies. In Germany, for example, there are statutory caps of a fixed amount, but these do not apply for deliberate breaches of duty. In France the auditor's liability cannot be limited by contract or otherwise.
In the US auditors cannot limit liability for their own negligence.
In the wake of corporate collapses and the introduction of the Sarbanes-Oxley Act reform of auditors' liability looked unlikely.
However, a US Treasury Committee has looked at the issue. They came to no real conclusions, but UK authorities and the SEC are holding discussions about the latter accepting UK LLAs.
Australia has been reforming its rules on liability auditor liability.
In 2004 it introduced proportionate liability for all claims for economic loss.
Individual states are also introducing schemes that cap auditors' and other professionals' liability. They will operate in addition to proportionate liability.