EU Commission Consultant in Favor of Auditor Cap

The European Commission has rolled out a study arguing for a cap on the liabilities of auditing firms.   Conducted by a London-based consulting firm, London Economics, the study says that a cap would reduce market concentration and help the Big Four firms -- which are the same across the pond as they are in the United States -- retain experienced staff. The major firms have all publicly lobbied for a cap, saying that legislating the change would shield them from the potentially ruinous lawsuits often filed in the wake of corporate scandals.   According to the study, firms in the European Union currently face nearly a dozen claims ranging from costs between $220 million and $1 billion, in addition to another handful of claiming each totaling damages of more than $1billion. The study also noted that the commercial insurance taken out by the firm’s would cover less than 5 percent of some of the larger claims.   The study also says that smaller accounting firms are unlikely to become a major alternative to the Big Four due to the high barriers to entry.   The United Kingdom is in the process of introducing legislation that would allow auditors to ink proportionate liability agreements with corporate clients -- making them responsible for only their own errors.   European Union internal market commissioner Charlie McCreevy has said he supports a fixed cap on liability claims, and the European Commission has promised to issue its own report on auditor liability before the end of the year.   Caps already exist in five EU member states -- Germany, Austria, Belgium, Greece and Slovenia – however, opponents of the measure say that offering auditors the refuge of limited liability could lead to audit complacency.