Conrad Hewitt, the Security and Exchange Commission's chief accountant, and the European Commission, the executive branch arm of the E.U. think "the big audit firms should be given legal protection against claims." Among the proposals (as reported by tax research firm RIA) are:
* Establishing a monetary cap on liability.
* Establishing a monetary cap on liability based on the market capitalization of the audit firm.
* Establishing a monetary cap on liability based on a multiple of the fees charged by the audit firm.
* Establishing proportional liability, where the audit firm's liability would be limited to the role it played in damages.
Basically, he argues that liability will make big auditing firms go under, to which the obvious response is, that if they are doing that shoddy a job, that they deserve to go under.
Treasury Secretary Hank Paulson and the Committee on Capital Markets Regulation are also involved in the U.S. effort. The adminisration may plan to try to get around Congressional opposition to the plan by issuing regulations or audit standards that would change audit firm liability.
A proposal like this would be basically an invitation for auditors to act laxly in assuring the accuracy of corporate books, which could undermine the very basis of the capital markets.