KPMG UK’s Griffith-Jones – "Trust Me"

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Undoubtedly, no one checked the quotes first. John Griffith-Jones is one slick dude. But even he must know that it’s best not to rub it in his clients’ faces.

Mr. Griffith-Jones believes that his clients are so, so afraid of another auditor collapse, they are willing to give away their right to recourse against them. The clients are so under their thumbs that they will limit the firms’ liability in the future even though it, “may not always be in the client’s best interests.”

I think it’s fine for the law to allow two mature, adult, responsible parties and their lawyers to negotiate any appropriate consensual contract. However, Mr. Griffith-Jones has insulted his future clients by assuming that some of them are not intelligent and aware enough to contest any unreasonable limits on liabilities that are inserted into the next standard contract for an audit by KPMG UK or any of the others.

Why wouldn’t clients seek terms that are in their best interest? Why wouldn’t they complain about onerous terms that gave them no recourse to the courts or to penalties for auditor negligence, aiding and abetting or malfeasance? Why wouldn’t they try to negotiate terms that fairly distributed the risk and liability according to the environment in which all were working?

Duh! Could it be because they have no choice?

Limiting auditor liability ‘would benefit everyone’
Any move to limit the liability of auditors would be of benefit to the whole of London’s financial centre, according to KPMG’s UK chairman.

New legislation scheduled to come into force next month enables companies to implement agreements that would limit auditor liability, reports the Financial Times.

It is not yet clear how many companies will agree such deals with their auditors, but KPMG’s John Griffith-Jones insisted that the changes have the potential to benefit everyone.

He told the newspaper that although it may not be in the interest of individual companies to limit their auditor’s liability, there is less chance of the market having to deal with the chaos caused by the collapse of a major accountancy firm if they agree to do so.

“There is a feeling among some that we’re all doing well enough without this, but it is classic safety legislation that needs to be there,” added Mr Griffith-Jones.

In 2002 Arthur Andersen, then one of the world’s leading accountancy firms, effectively disappeared after becoming caught up in the fallout from the collapse of one of its audit clients Enron.

Anonymous says:

March 25, 2008 at 5:31 pm

Indeed, the U.K. Firms are already so much better off today than their U.S. counterparts even without the possible liability limitation. The average partner comp in the U.K. is much higher than the U.S., especially at the leadership levels. And those folks are rather smug about that, and go around asserting somehow they do better audits that the U.S. Firms.

The reality is that they audit no better or no worse. They make more money per partner because the leverage model, the fact they don’t pay nearly as much for insurance/litigation costs, and I suspect that they don’t often engage in “cherry-picking” the clients of the competition – and this behavior reduces fee pressure.

Also, this liability limitation is just not needed in the U.K. based on the actual history of claims/payments and the good financial health of the UK Big 4. Having said that, I give them a lot of credit for moving the ball forward. You expect companies to lobby hard for issues that are important to them – and in this case they are mkaing progress. So don’t blame them for doing their job – seems like the regulators have created a pretty comfortable environment over there.

That is it for now, because I need to go find my passport and head over the pond to feed off the trough…

Final Four (and now really jealous) Guy

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