Prem Sikka asks this question on the Guardian blog today. He illustrates his argument with a powerful analogy:
Imagine visiting a dentist for some surgery. The dentist charges £200, but botches the surgery and inflicts life long discomfort, pain and further expense. Just when you are getting ready to sue the dentist for negligence you learn that the dentist's liability is 'capped' and that your maximum compensation cannot exceed £2,000, or say 10 times the fee paid.
Such a 'cap' on liability does not yet exist in the UK, but it could be introduced to indulge accountants acting as company auditors. The liability concessions given to auditors cannot easily be denied to doctors, surgeons, dentists, engineers, butchers, supermarkets and producers of food, drink, medicine, automobiles, cigarettes, or anything else. This will be the beginning of the end of the consumer protection principle: that the wrongdoer should suffer the consequences of his/her negligence.
Simply putting the argument this way shows how absurd is the claim that accountants should have a financial limit placed on their duty of care.
More absurd still is the fact that the demand for a liability 'cap' is being pushed, as Prem notes, by PricewaterhouseCoopers, KPMG, Deloitte & Touche and Ernst & Young. These firms, as he reports:
audit 97 per cent of the FTSE 350 companies, as well as major companies in other countries.
Their combined income of US$80bn is exceeded by the gross domestic product (GDP) of only 54 nations.
They claim that their survival is under threat, even though lawsuits against negligent auditors are rare.
And as Prem also points out:
Their annual audited accounts do not provide any meaningful information about their liability costs, insurance cover, legal or out-of-court settlements.
Why is that, I wonder?
Could it be that this is just a way of seeking to increase their already enormous annual earnings? I think that is all there is to this. And in accordance with the pattern we are seeing everywhere, the protection is given to those least in need of it.
Prem's arguments are spot on - and thankfully have the support of the Association of British Insurers. It's odd how often these days that those arguing for justice for civil society and investors find themselves working in harmony against the vested interests of management of large companies and their auditors.