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Companies Bill [Lords]

That is correct, and the reluctance of even big City law firms to embark on a case against the big four has been pointed out. They do, however, embark on cases against each other. When there is a question of making the auditor liable, the case is usually brought by the insolvency arm of another of the big four. They are fairly adept at taking action against each other, which is what they fear. They want limitation of liability to protect them from each other. All the precedents indicate that such limitation is dangerous. In 1986, the Law Commission said that a ““cap”” on auditor liability or ““proportional liability”” were against the public interest. The Office of Fair Trading also rejected the idea. Section 137 of the Companies Act 1989, which I mentioned earlier, allowed firms to buy insurance to cover their liability should they wish, but no major company has taken advantage of that. When such companies tell us that they would not get insurance, I wonder what kind of business they are running. One can buy insurance against Martians landing on the roof of one’s house. How come the big four are so shady that they cannot get insurance? The crisis of huge cases pending against the big four, threatening to end the existence of any one of them, is entirely spurious. It is clear that Enron, WorldCom, Xerox, Tyco, Adelphia and all the other scandals resulted directly from the limitation of liability in the United States. Joseph Stiglitz, who was an adviser to President Clinton, has said that the US liability laws directly paved the way for auditor negligence and the mega-scandals. If we limit liability, we get scandals. If liability is limited, what will keep auditors up to the mark? What will improve their performance and make sure that they are providing good audits? It seems a crazy principle to adopt. The president of the Institute of Chartered Accountants of Scotland, which examined failures—our chartered institute does not seem inclined to take on the big four, largely because it is permeated and dominated by them, and they provide the personnel and partners with the time to run the institute and to influence policy—said:"““All the failures we looked into would have been found if anyone other than the audit junior had looked at the bank statements””." He added:"““Big firms are no longer carrying out audits. They audit in helicopters and circle clients from a few thousand feet and take pictures. No one gets out of the helicopter and kicks tyres. It’s no longer audit, it’s more akin to due diligence””." We have supplied evidence to the Department that more than 60 per cent. of the staff carrying out audits admit to falsifying work under the pressure to provide the audit for the level of fees that has been cut to get the audit in the first place. We did not get much reaction from the DTI. We are against the principle of limiting liability. It seems dangerous and not conducive to good audit. We are anxious to maintain the reputation of the profession, particularly those small and medium-sized audit firms that need to be brought into the market to make it more competitive, but which are excluded by the dominance of the self-perpetuating big four.