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Europe explores reforms for auditors' liability

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BRUSSELS, Belgium—The European Commission has launched a public consultation on whether there is a need to reform rules on auditors' liability in the European Union.

In October 2006, the E.C. published a study on current auditors' liability rules and on insurance conditions in member states. Following that study, the E.C. is inviting stakeholders to give their views on possible options for reforming auditors' liability.

These options include the possible introduction of a pan-European fixed monetary cap, although the E.C. said in a statement that this may be difficult to achieve.

Other options include the introduction of caps based on the size of the audited company or on a multiple of the audit fees charged by the auditor to its client. The E.C. is also inviting opinions on whether member states should introduce the principle of proportionate liability for auditors, under which the auditor and audited company would be liable only for the portion of loss that corresponds to the party's degree of responsibility.

Internal Market and Services Commissioner Charlie McCreevy said in a statement: "There is an increasing trend of litigation against auditors, but often they cannot obtain sufficient insurance to cover the risk. So there is a real danger of one of the 'Big Four' (accounting firms) being faced with a claim that could threaten its existence.

"There are many ways to improve this situation: some member states already have capped auditors' liability, while others are introducing proportional liability combined with some limitations on who can sue auditors. However, given the differences between national markets, there is probably no one-size-fits-all approach," he added.

The consultation period ends March 15.

Details of the consultation are available at http://ec.europa.eu/internal_market/auditing/liability/index_en.htm.