INTERSECTIONS OF LAW AND ACCOUNTANCY - UNLIMITED AUDITOR LIABILITY INTHE UNITED-KINGDOM

In recent years, considerable pressure has grown within the British au diting industry for limitation of liability arising from negligent mis -statements in audit reports. Under British company law, auditors are forbidden from contracting with companies for their liability to be re stricted. This legal provision was introduced in the Companies Act 192 9 as a byproduct of legislation relating to directors' liability. The paper explores the background to this legal provision, observing that auditor liability cannot be viewed as a self-contained matter of inter est only to a limited community. Attitudes to auditor liability have b een shaped against a background of changes in the law of negligence, s ome, but by no means all, arising from cases involving auditors. Moreo ver, changing concepts of the position of the auditor within corporate governance structures have at different times encouraged and discoura ged the assimilation of the legal treatments of auditors and directors . These concepts themselves reflect differing notions of what actually constitutes the ''company'': a collectivity of shareholders or a sepa rate entity controlled by directors. These notions emerged against a b ackground of corporate failure and the need to allocate losses among v arious parties with different degrees of culpability for failure. Howe ver, legal developments do not account by themselves for changing atti tudes within the auditing industry towards unlimited liability; accept ance of full responsibility for one's statements, adopted as a badge o f professional status, has more recently been seen as inhibiting the c ommercial development of British auditing. (C) 1998 Elsevier Science L td. All rights reserved.