European Union regulators suggested capping what investors can claim from auditors for losses in accounting scandals, to keep mounting lawsuits from killing off the dwindling ranks of global auditing firms.
The EU could limit what accounting firms are forced to pay, based on their revenue or the size of the company audited, the European Commission said in a report on policy options today. The Brussels-based agency also said it may recommend „proportionate liability,” tying compensation to how much of a restatement or other bookkeeping mishap can be blamed on the auditor. The policy review follows an EU overhaul of audit regulation that responded to accounting scandals such as at Parmalat SpA. Deloitte Touche Tohmatsu's Italian unit agreed last week to pay $149 million to settle claims in that bankruptcy.
„There is an increasing trend of litigation against auditors, but often they cannot obtain sufficient insurance to cover the risk,” Charlie McCreevy, the EU financial services commissioner and a chartered accountant from Ireland, said in a statement. „There is a real danger of one of the `Big Four' being faced with a claim that could threaten its existence.”
The commission is seeking public comments until March 15 before it sets a course of action. McCreevy has said he favors a recommendation to national governments. A fixed cap at the EU level „might be difficult to achieve,” the commission said. „Given the differences between national markets, there is probably no one-size-fits-all approach,” McCreevy said in his statement. Germany, Greece, Belgium, Austria and Slovenia already have caps, while the UK in November let auditors and companies begin setting contractual limits, subject to approval by shareholders, according to the commission. (Bloomberg)