The reform of the current liability regime in which auditors operate is imperative, the Institute of Chartered Accountants (ICAI) has said.
In a position paper published yesterday, the institute argued that the current liability regime is "uniquely unfair" to auditors, and is also detrimental from a public-interest perspective.
Under the current regime, auditors can be held responsible for company difficulties they may not have contributed to.
Legislation currently in place also prevents auditors from availing of incorporation. The result of this is that the personal assets of partners in audit firms are put at risk with each engagement, regardless of whether a partner has been involved in the particular audit.
"Obviously this is an area in which auditors want to see reform," said Aidan Lambe, ICAI director of technical policy. "The issues at stake are the subject of a consultation by the European Commission."
The issue of auditor liability has also been referred to the Company Law Review Group for consideration.
Mr Lambe made clear that the ICAI is not calling for auditors to be made exempt from any liability, but rather that they should not be held responsible for liabilities arising from the actions of others.
Possible reforms suggested by the ICAI include the introduction of statutory liability caps, or the amendment of current legislation to allow auditors to agree liability caps with companies they are auditing.
The institute said that even the largest audit firms in the State are running an "uninsured risk" when auditing large companies or hedge funds.
"We argue that, given Ireland's vital economic interest in foreign direct investment and the hedge fund industry in the IFSC, that should a failure occur it would have disastrous consequences for this country," Mr Lambe said.
