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Auditors, litigation and caps
Filed in archive Accounting by leon on November 2, 2007
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Hat tip to Francine McKenna at Re: The Auditors for alerting to us the prospect of entrepreneurial litigation funders threatening to drive auditors out of business.

Certainly the case of third party funders in Britain is an interesting development and might well put the fear of God in many accounting firms.

But let's get this in some sort of perspective. There is every likelihood that auditors are going to get some extra protection from litigation. In Washington, moves are afoot to introduce audit liability caps. And next year in Britain, the law will change to allow auditors to calculate and seek agreements with clients to limit their liability.

Professor Prem Sikka, a long time critic of the accounting industry says it is the end of consumer protection and warns that it will only result in more audit failure.

"In other walks of life, the threat of lawsuits and damages encourages producers to improve the quality of their goods and services," Sikka writes. "In contrast, auditors receive liability concessions to shield them from the consequences of their own negligence. There is no theory or evidence to show that reduced liability somehow encourages producers to improve the quality of their products and/or services. With reduced liability, auditors will have even less economic incentives to be vigilant and improve the quality of company audits. More audit failures are sure to follow."



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Tags: audit  caps  litigation  litgation  funders  auditors  auditors+litigation  litigation+caps 
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