Auditors Seeking Limitation of Liability


It is when times get tough that problems which might have been easy to gloss over in better times start to make themselves visible. When serious problems that have remained undiscovered for a substantial period come to light, a company’s auditors may well find themselves facing a writ. 

The sections of the Companies Act 2006 which allow auditors to limit their liability for audit work, with the agreement of their audit client, are now in force. However, because the Financial Reporting Council is delaying the provision of guidance on the form such agreements should take, it is likely to be some time before your auditor proposes a ‘liability limitation agreement’ to you.
Recently, a claim against a firm of auditors, which had failed to spot an £80 million fraud committed by the managing director of a company, was struck out by the Court of Appeal. The Court concluded that the claim, if successful, would confer ‘benefits on the corporate vehicle, which was used to commit the fraud and was not the victim of it’. Because the claim arose from the illegal behaviour of the claimant, it failed.
Partner Note
Sections 532 to 538 of The Companies Act 2006 came into force on 6 April 2008.
For further information on the accountancy profession’s view, see Accountancy Age (for example, where it is frequently in the news.
Moore Stephens v Stone & Rolls Ltd. [2008] EWCA 1826 Civ 644.

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