The Live Wire

Liability Reform

KPMG believes that to ensure both a competitive market for audit and to maintain and further raise the quality and confidence in financial reporting, there should be a framework where the auditor and audit firms are required to compensate for the proportionate share of any losses caused by their negligence, but not be exposed to the full losses incurred in any given corporate failure or corporate collapse. KPMG in the UK welcomes moves in the UK, Australia, Canada and elsewhere to reform unrestricted liability but believe this needs a global approach to minimise the very real risk of an accounting organisation collapsing through the weight of liability claims by client and third parties. Senior business leaders have also been very supportive of the need for liability reform as an essential part of restoring confidence on capital markets and financial reporting. We support the parliamentary amendment to the EU 8th Directive to provide a framework that does not place an unlimited financial liability burden on audit firms.


About 20 percent of audit revenue is consumed by legal, settlement and insurance costs associated with liability. It is no longer possible for auditors of major corporations to fully insure against their exposures, and auditors have become the easy target to sue even when collapses are unrelated to any audit failure because of unlimited liability. KPMG in the UK believes that liability should be proportionate, and that, in any event, companies should be free (subject to agreement by their audit committees and shareholders) to voluntarily limit liability as a contractual arrangement. It is worth noting that there is much greater competition in the audit market for publicly-quoted companies in Germany, Austria and Greece where statutory caps operate. Currently, unlimited exposure to liability serves as a real barrier to entry in the listed audit market for mid-tier firms.

KPMG LLP

KPMG LLP

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