Brussels has presented options on how to protect large auditing firms from unrestricted liability claims as companies increasingly seek legal redress in the wake of the 2002 Enron scandal.
The Commission has published a Paper that sets out ways to protect the 'big four' auditing companies KPMG, Ernst & Young, Pricewaterhouse Coopers and Deloitte & Touche, from ruinous damage claims. A fifth auditor, Arthur Andersen, collapsed in 2002 following the Enron scandal.
The Paper, published on 18 January 2007, comes just days after Deloitte announced it would pay Parmalat more than €115 million to settle claims in relation to the company's collapse. The document reports that there are currently 16 claims against the four largest audit companies of more than €160 million and five claims of more than €750 million.
An earlier study by London Economics (EurActiv 6/10/06) had suggested that such claims could pose a threat to the financial stability of the wider economy, that "one of the major 'Big Four' networks could possibly fail" and "a limitation on auditor liability would reduce risk caused by potential catastrophic claims".
Internal Market and Services Commissioner Charlie McCreevy said: "There is a real danger of one of the 'Big Four' being faced with a claim that could threaten its existence." He added: "However, given the differences between national markets, there is probably no one-size-fits-all approach."
The Commission has thus proposed four options:
- A fixed monetary cap at European level;
- a cap based on the size of the audited company;
- a cap based on a multiple of the audit fees charged, and;
- member states introducing the principle of proportionate liability, making each party liable only for the portion of loss that corresponds to the party’s degree of responsibility.
Commission spokesperson Oliver Drewes said that the "status quo is untenable" and stressed that the current situation was "an important factor for people not to enter the market". Therefore, a cap was necessary to keep markets functioning, Drewes claimed.
Member states are likely to be split on the issue, with a majority having no cap on liability, unlike Germany, Austria, Belgium, Greece and Slovenia. In Belgium, for example, the cap is set at €12 million. Britain is currently introducing the concept of proportionate liability.