AUDITOR LIABILITY: THE OTHER SIDE OF THE DEBATE

• Published in: Critical perspectives on accounting Vol. 10; no. 3; pp. 283 - 312
• Main Authors: Cousins, Jim, Mitchell, Austin, Sikka, Prem
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01-06-1999
• Subjects: Accounting; Auditing; Civil proceedings; Legislation; Liability; Stockholders
• ISSN: 1045-2354; 1095-9955
• DOI: 10.1006/cpac.1998.0322

The auditing industry claims to be an unfair victim of lawsuits and has deployed its considerable economic and political muscle in a campaign to secure further liability concessions. Amongst other things, it seeks to replace “joint and several liability” of partnerships with “full proportional liability”, a “cap” on auditor liability and a statutory right to negotiate liability limits with company directors. This paper challenges the evidence and the arguments advanced by the UK auditing industry. It argues that there is little convincing argument to support that industry's claims. On the contrary, ordinary stakeholders are relatively powerless to take action against negligent auditors. It is noted that most of the major lawsuits are by one accountancy firm against another. The UK auditing industry already enjoys considerable privileges, such as incorporation and “contributory negligence”, a form of modified proportional liability. Despite these privileges, the industry has shunned public accountability. It is holding the UK public to ransom by threats of locating its operations in offshore islands. Scholars are urged to develop alternative public policy options and analysis.