European Commission blocks big four’s attempts to limit liabilities

The European Commission has flatly rejected a proposal by the big four accounting firms for a limit to be set on their liabilities.

EU Internal Market Commissioner Frits Bolkestein said that unlimited liability was a “quality driver” and Brussels had no intention of intervening to limit liability. His comments followed judgment in a Scottish case where the judge ruled that where there were disclaimers on audits, a case could not be brought against an auditor.

Bolkestein said the existing “deep pocket” approach for actions against large auditors was “principally sound” because someone who had suffered damage should not have to shoulder the burden of separately suing all parties that have a partial responsibility for proper financial statements. He said that audits are carried out in the public interest and that third parties should be able to rely on the correctness of companies’ financial statements and be in a position to claim damages in case of fraudulent financial reporting.

The US Securities and Exchange Commission said that the UK disclaimer “will have no effect in the US”.