Proposals for a new audit liability regime in Europe

The past few years have seen a growing trend towards the focus on audit liability. In the UK, the Company Law Reform Bill which became the Companies Act 2006, has removed the previously existing limits on auditor liability and compelled an agreement between the company and the auditor. As well as the UK, audit liability caps also currently exist in Austria, Belgium, Germany, Greece and Slovenia. This paper addresses the four options presented by the European Commission in the reform of the audit liability regime in Europe. It also responds to the proposals put forward by Doralt and others in their response to the European Commission’s four options. The paper commences with a background to how increased audit concentration has contributed to increased audit liability measures. It then discusses the significance of the Companies Act 2006, following the leading case of Caparo Industries plc v Dickman and Others. The four options presented by the European Commission for reforming auditors’ liability regime are then introduced. In arriving at a preferred choice, the need for a consideration of harmonisation and facilitating greater cooperation between national financial regulators, were contributory factors.