A Crisis of Identity? Juxtaposing Auditor Liability and the Value of Audit

  • Christopher Humphrey
  • Anna SamsonovaEmail author


Despite attempts to find appropriate regulatory solutions, the issue of the civil liability of statutory auditors and the perceived need for some form of liability limitation continues to evoke divergent views and reactions. The analysis in this chapter indicates that such divergence is characteristic not just of the positions taken by various stakeholder groups but also of the differences in the nature and scope of auditor liability regimes adopted in individual countries. This chapter uses such analysis to suggest that the auditor liability debate and the continuing search for a regulatory solution has potentially hindered more focused consideration of the professional identity of auditors, their capacity to meet public expectations and the extent to which such capacity (and achievements) varies across countries and the differing cultural contexts in which auditors work.


European Union Liability Limitation Audit Firm Civil Liability Audit Opinion 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


  1. ACCA (2011) Audit reform: aligning risk with responsibility. Report. May. London: ACCA.Google Scholar
  2. Accountancy Age (1993). Big firms lead push to cap audit liability, 1.Google Scholar
  3. Accountancy Age (1994a). Audit liability campaign shifts to public interest, 10.Google Scholar
  4. Accountancy Age (1994b). Audit liability—we are not crying wolf this time, 10.Google Scholar
  5. Accountant (2003) Urgent need for liability reform. 25th April, 2.Google Scholar
  6. Al-Shawaf, H. T. (2012). Bargaining for salvation: how alternative auditor liability regimes can save the capital markets. University of Illinois Law Review, 2012, 501–536.Google Scholar
  7. Andersen A & Co., (1992) Coopers and Lybrand, Deloitte and Touche, Ernst and Young, KPMG Peat Marwick, price waterhouse, the liability crisis in the United States: impact on the accounting profession. Journal of Accountancy, 174(5): 19–23.Google Scholar
  8. Baker, C. R., & Prentice, D. (2007). The evolution of auditor liability under common law. Journal of Forensic Accounting, 8, 183–200.Google Scholar
  9. Baker, C. R., & Prentice, D. (2008). The origins of auditor liability to third parties under United States common law. Accounting History, 13, 163–182.CrossRefGoogle Scholar
  10. Brewster, M. (2003). Accountable: how the accounting profession forfeited a public trust. New Jersey: Wiley.Google Scholar
  11. Carey, J. L. (1965). The CPA plans for the future. New York: American Institute of Certified Public Accountants.Google Scholar
  12. Center for Audit Quality (2008a). Report of the major public company audit firms to the department of the treasury advisory committee on the auditing profession.
  13. Center for Audit Quality (2008b). Comment letter by Cynthia M. Fornelli, executive director, regarding draft report addendum 1719.
  14. Chung, J., Farrar, J., Puri, P., & Thorne, L. (2010). Auditor liability to third parties after Sarbanes-Oxley: an international comparison of regulatory and legal reforms. Journal of International Accounting, Auditing and Taxation, 19, 66–78.CrossRefGoogle Scholar
  15. Cousins, J., Mitchell, A., & Sikka, P. (1999). Auditor liability: the other side of the debate. Critical Perspectives of Accounting, 10, 283–312.CrossRefGoogle Scholar
  16. De Poorter, I. (2008). Auditor’s liability towards third parties within the EU: a comparative study between the United Kingdom, the Netherland, Germany and Belgium. Journal of International Commercial Law and Technology, 3(1), 68–75.Google Scholar
  17. Directorate General for Internal Market and Services (2007a). Commission staff working paper: consultation on auditorsliability and its impact on the European capital markets. Brussels: European Commission.Google Scholar
  18. Directorate General for Internal Market and Services (2007b). Consultation on auditors’ liability: summary report. Brussels: European Commission.Google Scholar
  19. Ernst & Young (2008).Comment letter regarding draft report and draft report addendum 25–26.Google Scholar
  20. Financial Reporting Council (2008), Guidance on Auditor Liability Limitation Agreements, London: FRC, June 2008. See
  21. Gietzmann, M. B., & Quick, R. (1998). Capping auditor liability: the German experience. Accounting, Organizations and Society, 23(1), 81–103.CrossRefGoogle Scholar
  22. Gietzmann, M. B., Ncube, M., & Shelby, M. J. (1997). Auditor performance, implicit guarantees, and the valuation of legal liability. International Journal of Auditing, 1(1), 13–30.Google Scholar
  23. Giudici, P. (2010). Auditors’ roles and their multi-layered liability regime. Working paper. Italy: Free University of Bozem-Bolzano.Google Scholar
  24. Gwilliam, D. R. (2004). Auditor liability: law and myth. Professional Negligence, 20(3), 172–181.Google Scholar
  25. Gwilliam, D. R. (2006). Audit quality and audit liability—a musical vignette. Professional Negligence, 22(1), 37–52.Google Scholar
  26. Hill, J., Metzger, M., & Wermert, J. (1994). The spectre of disproportionate auditor liability in the savings and loan crisis. Critical Perspective on Accounting, 5(2), 133–177.CrossRefGoogle Scholar
  27. House of Lords (2010). Auditors: market concentration and their role. Volume II: Evidence. London: House of Lords.Google Scholar
  28. Humphrey, C., & Samsonova, A. (2012). Transnational governance in action: the pursuit of auditor liability reform in the EU. Working paper. Manchester Business School, UK: University of Manchester.Google Scholar
  29. ICAA (1995). Opportunity, equity and fairness. Edmonton: Institute of Chartered Accountants of Alberta.Google Scholar
  30. Knapp, M. (2011). Contemporary auditing; real issues and cases. South-Western, USA: Mason.Google Scholar
  31. Koch, C. W. & Schunk, D. (2009). Limiting auditors’ liability? - experimental evidence on behavior under risk and ambiguity. Working paper.
  32. Kohler, A.G., Marten, K-U., & Quick, R. (2008). Audit regulation in Germany: improvements driven by internationalization. In R. Quick, S. Turley, & M. Wilekens. (Eds.) ‘Auditing, trust and governance: developing regulation in Europe’. Routledge: London: 111–143.Google Scholar
  33. Korchagina, V. (2002). Big five discuss auditing problems. The Moscow Times.Google Scholar
  34. Lys, T. (2005). Discussion: the evolution of lawsuits against auditors—determinants, consequences, and solutions. Journal of Economics and Management Strategy, 2(3), 427–433.CrossRefGoogle Scholar
  35. Mahoney, P. G. (2009). The development of securities law in the United States. Journal of Accounting Research, 47(2), 325–347.CrossRefGoogle Scholar
  36. Merino, B. D., & Kenny, S. Y. (1994). Auditor liability and culpability in the Savings and Loan industry. Critical Perspectives on Accounting, 5(2), 179–193.CrossRefGoogle Scholar
  37. Minow, N.N. (1984). Accountants’ liability and the litigation explosion. Journal of Accountancy 70.Google Scholar
  38. Napier, C. (1998). Intersections of law and accountancy: unlimited auditor liability in the United Kingdom. Accounting, Organizations and Society, 23(1), 105–128.CrossRefGoogle Scholar
  39. O’ Malley, S. F. (1993). Legal liability is having a chilling effect on the auditor’s role. Accounting Horizons, 7(2), 82–87.Google Scholar
  40. Oberly, K. (2008). Written testimony of Kathryn, A. Oberly (Americas Vice Chair and General Counsel, Ernst & Young LLP) before the Federal Advisory Committee on the Auditing Profession to U.S. Department of the Treasury.
  41. Pacini, C., Hillison, W., & Sinason, D. (2000). Auditor liability to third parties: an international focus. Managerial Auditing Journal, 15(8), 394–406.CrossRefGoogle Scholar
  42. Palmrose, Z. (1997). Audit litigation research: do merits matter? an assessment and directions for future research. Journal of Accounting and Public Policy, 16, 355–378.CrossRefGoogle Scholar
  43. Puri, P., & Ben-Ishai, S. (2003). Proportionate liability under the CBCA in the context of recent corporate governance reform: Canadian auditors in the wrong place at the wrong time? Canadian Business Law Review, 39, 36–50.Google Scholar
  44. Quick, R., Turley, S., & Wilekens, M. (2008). Auditing, trust and governance: developing regulation in Europe (pp. 205–222). London: Routledge.CrossRefGoogle Scholar
  45. Roach, L. (2010). Auditor liability: liability limitation agreements, working paper. UK: University of Portsmouth.Google Scholar
  46. Roberts, R. W., Dwyer, P. D., & Sweeney, J. T. (2003). Political strategies used by the US public accounting profession during auditor liability reform: the case of the private securities litigation reform act of 1995. Journal of Accounting and Public Policy, 22, 433–457.CrossRefGoogle Scholar
  47. Samsonova, A. (2012). Local sources of a differential impact of global standards: the case of international standards of auditing in Russia, working paper. UK: Manchester Business School, University of Manchester.Google Scholar
  48. Scherl, J. (1994). Evolution of auditor liability to noncontractual third parties: balancing the equities and weighing the consequences. The American University Law Review, 44, 255–289.Google Scholar
  49. Sikka, P. (2008). Globalization and its discontents: accounting firms but limited liability partnership legislation in Jersey. Accounting, Auditing and Accountability Journal, 21(3), 398–426.CrossRefGoogle Scholar
  50. Siliciano, J. A. (1997). Trends in independent auditor liability: the emergence of a sane consensus? Journal of Accounting and Public Policy, 16(4), 339–353.CrossRefGoogle Scholar
  51. Sunday Times (2004). Big four battle liability laws. 2nd May; 8.Google Scholar
  52. Talley, E. L. (2006). Cataclysmic liability risk among big 4 auditors. Columbia Law Review, 106(7), 1641–1697.Google Scholar
  53. Thornton G. (2008). Comment letter regarding draft report and draft report addendum 4.
  54. Turley, S. (2008). Developments in the framework of auditing regulation in the United Kingdom. In Quick, R., Turley, S. and Wilekens, M. (Eds.) Auditing, Trust and Governance: Developing Regulation in Europe. London: Routledge; 205–222.Google Scholar
  55. Ward, G. (1999). Auditors’ liability in the UK: the case for reform. Critical Perspectives on Accounting, 10(3), 387–394.CrossRefGoogle Scholar
  56. European Commission (2008). Commission recommendation of 5/VI/2008 concerning the limitation of the civil liability of statutory auditors and audit firms, 2008/473/EC. Brussels: European Commission.Google Scholar

Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Accounting and Finance Group, Manchester Business SchoolUniversity of ManchesterManchesterUK

Personalised recommendations