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CAQ Urges Treasury's Audit Committee To Consider Feasibility of Liability Caps
by BNA Daily Report for Executives (Subscription required for full article)
July 8, 2008
In an article on the CAQ’s response to the Treasury Advisory Committee on the Auditing Profession’s draft report and addendum, BNA reports, “The Center for Audit Quality is urging the Treasury Department's Advisory Committee on the Auditing Profession to consider ‘the utility and feasibility’ of caps on the amount of damages for which auditors can be held liable” in response to the Committee’s draft report and addendum.
In discussing the Committee’s recommendation for the “litigation issue” addressed in an addendum to the draft report, BNA cited the CAQ’s comment letter issued on June 27, 2008, which stated, "As with other litigation risk-related recommendations in the Draft Report, this proposed recommendation is helpful in some respects, but does not adequately provide a response to catastrophic liability risk."
The CAQ goes on to say that the committee has a "unique opportunity" to review a statement by the European Commission issued June 6 calling for principles to be adopted that would limit auditor liability.
According to the CAQ, "while there are various forms that liability caps could take, the Committee should, at a minimum, urge their consideration as a logical way to protect audit firms against the threat of catastrophic liability. Liability caps could be tailored to the individual audit firm's ability to pay, or to the size of the audit fee, or the market capitalization of the audit client."
The CAQ concluded that it is not advocating a "free pass" for substandard audits and that it does not support "reform" that would reduce audit quality. "But we do strongly believe that the catastrophic litigation risks faced by audit firms should be addressed in a manner that is consistent with providing both audit firm viability and audit quality."
