Introductory Comments
· The IoD gave qualified support to the concept of auditors being able to limit their liability in some way in its response to the government's December 2003 consultation on director and auditor liability, and in consultation on what has become the Companies Act 2006 supported a proportionate liability approach.
· In its final form the Companies Act 2006 goes further, and allows auditors to limit their liability to the extent `fair and reasonable'. The permission extends to all companies subject to audit and the IoD believes that there is a need for guidance in this area. Many companies will not be in a strong position when asked to agree to limitation of liability by their auditors who are likely to have much greater knowledge and experience in the area. This is particularly true for smaller private companies that are subject to audit.
· It is disappointing that the working group did not include representatives from private companies to which this law applies, either directly or by virtue of a representative body. These are the companies whose directors and shareholders will stand in greatest need of assistance when faced with an almost inevitable request to limit the liability of their auditors, probably by way of a standard form agreement. The guidance should have been written with such an audience particularly in mind.
See full Report, in pdf format.
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