Auditor Liability Still a Going Concern

by Thomas A. Dubbs

October 01, 2010

Company management retains the auditor and has contractual rights and responsibilities negotiated at the time of retention.  Investors rely on auditor information provided periodically and at year's end to help determine the health of their company. Auditor liability in securities litigation has been hotly debated on both sides of the Atlantic since well before the global financial crisis began. The need to support the work of independent financial gatekeepers on the one hand, while effectively punishing auditors who have abandoned their responsibilities, has made the question of how to deal with auditor liability a complicated one. Today, we are examining potential reforms in the United Kingdom and United States affecting the relationship between the company and the auditor.  In the UK, auditors have received the right to ask for liability caps through contractual agreement with a corporation and in the U.S. their exposure to malpractice claims is under scrutiny. Either of these changes in the auditor/company relationship will have a knock on effect for the investor.

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