The European Commission has issued a Recommendation concerning the limitation of auditors' liability in respect of the statutory audit of the accounts of a company which is registered in a Member State and the securities of which are admitted to trading on a regulated market in a Member State. The Recommendation provides:- The civil liability of statutory auditors and of audit firms arising from a breach of their professional duties should be limited except in cases of intentional breach of duties by the auditor.
- The limitation of liability should apply against the company audited and any third party entitled under national law to bring a claim for compensation.
- Any limitation of civil liability should not prevent injured parties from being fairly compensated.
The Recommendation provides that any of the following methods can be used by Member States:
- establishing a maximum financial amount (or a formula for the calculation of such an amount).
- establishing principles by virtue of which the auditor is not liable beyond its actual contribution to the loss suffered and is accordingly not jointly and severally liable with other wrongdoers.
- permitting the auditor and company being audited to determine a limitation on liability through agreement.
For further information see the following documents published by the Commission: executive summary, impact assessment, press release and frequently asked questions.
NB: In the UK, Section 534 of the Companies Act (2006) permits auditors to enter into a "liability limitation agreement". This is an agreement "that purports to limit the liability owed to a company by its auditor in respect of any negligence, default, breach of duty or breach of trust, occurring in the course of the audit of accounts, of which the auditor may be guilty in relation to the company". To be valid, such agreements must comply with Section 535 and must be authorised by the company's shareholders under Section 536.
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