Auditors play a critical role in maintaining capital market confidence. On the face of it, it is therefore encouraging that the European Commission is considering new common rules on auditor liability. After all, accounting scandals in one country could conceivably raise the cost of capital in the rest of Europe. Moreover, investor protections against auditor negligence in most of the European Union are far weaker than in the US. Whatever else one makes of recent US reforms, they do appear to be finally turning auditors into proper watchdogs.
Unfortunately, Charlie McCreevy, the commissioner in charge and a chartered accountant by training, seems more concerned with protecting his former colleagues than investors. The consultation on the initial EU proposals period ended last week and the debate largely focused on how auditor liability should be limited.
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