The U.K. government proposed legislation last week that could limit the liability accounting firms face when auditing publicly traded companies.

The Big Four accounting firms had lobbied for an up-front cap on auditors' liability, which the legislation drafted by the Department of Trade and Industry stops short of. A wide-ranging bill released by the department instead includes a new rule that would let companies and their auditors agree that an accounting firm's liability should be limited to a proportion of any damages directly linked to its work. Shareholders would have to agree to such a limitation.

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