Limiting auditors' liability: the case for (and against) EU intervention

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Abstract

This paper addresses auditors’ liability in the light of the current competition problems in the market for statutory audits and actions taken by the European Commission. First, it will be explained that there is a lack of competition in the market for audits of large and quoted companies. Middle-tier firms are not willing to enter this market, inter alia, because of high litigation risks and problems in the insurance market. Second, Commission Recommendation 2008/437 will be analysed from an economic perspective. Interestingly, the Commission suggests various options for limiting liability, but leaves the choice between those instruments to Member States. The need to limit auditors’ liability will be addressed in the context of the economic theory of regulation, with a focus on the European context. The central question, therefore, is whether there is a need for the EU to intervene
and whether the existing Recommendation is the right instrument.
Original languageEnglish
Pages (from-to)585-597
Number of pages13
JournalGeneva Papers On Risk and Insurance
Volume39
Issue number3
DOIs
Publication statusPublished - Jul 2014

Keywords

  • AUDITING STANDARDS
  • COMPETITION
  • REPUTATION
  • auditors
  • liability caps
  • liability insurance
  • professional regulation

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