bea2004 background reading unit 2 audit liability and audi…

Audit Quality and Audit Liability – a Musical Vignette D. Gwilliam The background 1As discussed in a previous paper in this journal for more than thirty years the large accounting and audit firms in the UK have been persistent and pressing in their assertions that they operate within an unfair legal environment in which they are subject to liability for very large amounts in situations where the fault lies elsewhere. In this context they have sought changes in this environment so as to provide them with further protection from claims which they see as unwarranted and a threat to their continued existence. Innovatively overcoming the reluctance of the government 2to disturb the status quo they were successful in obtaining legislation allowing them to operate as limited liability partnerships (thereby obtaining the benefits of incorporation in terms of protection of the personal assets of members whilst 3retaining the taxation advantages associated with partnership status). More recently the government has incorporated in its company law reform bill clauses allowing company auditors to agree to limit liability to their clients by means of contract - which would overturn a prohibition on such agreements which has been in UK company law for more than seventy five years. As a perceived quid pro quo the profession, prompted by the large firms, has set up an Audit Quality Forum which is designed to bring together various stakeholders in the audit ...