The results of the European Commission’s public consultation are summarised below.
In the Spring 2007 issue of CPA Protect (“Auditors liability regimes” on p 9), we reported on the steps being taken by the European Commission to analyse the economic impact of the current EU rules on auditors’ liability regimes. The Commission’s consultation paper on the subject – launched in January 2007 with responses due in by 15 March – suggested the following four possible options for liability reform in the EU:
- Option 1: the introduction of a single European-wide cap.
- Option 2: a variable cap depending on the size of the client company.
- Option 3: a cap based on a multiple of audit fees.
- Option 4: the introduction of proportionate liability.
In total, there were 85 responses to the consultation. Twenty of these were from international respondents (including the Big Four accountancy practices) and the remainder came from 15 countries within Europe. Unsurprisingly, auditors formed the largest category of respondents (30) with responses also being submitted by insurers (10), companies (9), investors (8), academics/banks/miscellaneous (6 each), regulators (5), member states (3) and other market participants (2).
The auditing professionals unanimously supported the Commission’s initiative, whereas the non-auditor respondents expressed differing views. Overall, 66% of respondents supported some form of reform, 29% were opposed and 5% were undecided.
As for the level of support for each of the four options, it is harder to draw clear conclusions from the responses because a large number of those who support the Commission’s initiative expressed views about each of the options suggested by the Commission. Thus, when considering support for each of the options in percentage terms, the responses exceeded 100%. That said, the clear preference from the audit profession was Option 3 (70%), with 57% favouring Option 4 and 50% in favour of a combination of proportionality and a cap. Proportionality was the preferred option for those outside the audit profession (61%). The other options were less popular: Option 1 - 24%; Option 2 - 24%; and Option 3 - 18%.
The auditor respondents have asked the European Commission to issue a recommendation on this.