The European Commission has issued a Recommendation concerning the limitation of auditors’ liability. It aims to encourage the growth of alternative audit firms in a competitive market and is a response to the increase in litigation against auditors and absence of sufficient insurance cover. It leaves individual Member States to decide on the appropriate method for limiting liability, but introduces a set of key principles to ensure that any limitation is fair to all interested parties. These include the disapplication of any limitation on liability where there has been intentional misconduct on the part of the auditor, the inclusion of third parties in the limitation and a right to fair compensation for ‘damaged’ parties.