State Board Report
While 40 years ago there was minimal audit liability risk, there has been a dramatic acceleration of audit liability costs in the western world, with risk having reached 15 percent of audit revenues, Richard H. Murray, chief claims strategist of Swiss Re, told the FIAR attendees. He stated the shared goal is: “Sustained availability on a global basis of the highest quality and value of the independent audit services.” He observed that, as the Bernard Madoff case has recently shown, when individuals can’t sue the direct auditor, they will pursue the auditors of the feeder fund, saying they should have seen the anomalies.
Should liability containment for auditors be sought in the United States? Mr. Murray noted the European Commission’s Public Consultation on Auditor’s Liability (“McGreevy Report”) concluded that, in the European Union, the death of one of the major firms presented too big a risk and something should be done to contain it. The US Treasury Department’s Advisory Committee on the Auditing Profession (ACAP) was split on that point. Mr. Murray sees a hazard to the public interest. He does not believe capping of liability is foreseeable or desirable in the United States, but maintains there are alternatives being developed. During a breakout session, Mr. Murray said he believes the appropriate application of proportionate liability is, theoretically, the simple way to solve the situation, but there needs to be a way to implement it. Causation needs to be factored in: Did the audit failure become the commercial loss? He stated, “There is a big business around haunting auditors with claims. Auditors have become the center of the firestorms. The profession has never sat down to figure out how we solve this. “
- MEMBER CENTER