Description
In 2008, following a sustained policy campaign by the large international accounting firms,
the European Commission issued a Recommendation that European Union (EU) Member
States should limit civil liability for statutory auditors. The Recommendation, however,
was far from the firms’ desired outcome because, as a non-binding policy document, it left
it to individual Member States to decide whether (or not) and how to limit auditors’ liability
exposure. This paper analyzes the European transnational audit policy-making processes
by which such a decision was reached and what prevented the firms from
securing a more definitive EU-wide policy solution with respect to auditor liability limitation.
Risk and the construction of a European audit policy agenda:
The case of auditor liability
Anna Samsonova-Taddei
?
, Christopher Humphrey
Manchester Accounting and Finance Group (MAFG), Manchester Business School, The University of Manchester, Crawford House, Oxford Road, M13 9PL
Manchester, UK
a b s t r a c t
In 2008, following a sustained policy campaign by the large international accounting ?rms,
the European Commission issued a Recommendation that European Union (EU) Member
States should limit civil liability for statutory auditors. The Recommendation, however,
was far from the ?rms’ desired outcome because, as a non-binding policy document, it left
it to individual Member States to decide whether (or not) and how to limit auditors’ liabil-
ity exposure. This paper analyzes the European transnational audit policy-making pro-
cesses by which such a decision was reached and what prevented the ?rms from
securing a more de?nitive EU-wide policy solution with respect to auditor liability limita-
tion. Drawing on Hilgartner’s concept of a ‘risk object’, the paper reveals how a search for a
policy consensus on auditor liability was invariably frustrated by the competing conceptu-
alizations of, and exposure to, risk attributed to particular proposed liability arrangements.
As such, auditor liability emerges as a constantly shifting regulatory construct rather than a
dilemma waiting to be resolved. The study also emphasizes the residing signi?cance of the
authority of the nation state in the European audit policy context, with policy preferences
of individual EU Member States having a substantial in?uence on the outputs of European
audit policy making.
Ó 2014 Elsevier Ltd. All rights reserved.
Introduction
The past decade has witnessed a substantial growth in
accounting research concerned with issues of transnational
regulation and the existence of an international ?nancial
architecture (Arnold, 2009; Humphrey, Loft, & Woods,
2009). There has been an active level of engagement, for
example, with the work of various multinational agencies,
including the World Trade Organization and the World
Bank (Arnold, 2005; Neu, Ocampo Gomez, & Graham,
2006) as well the growing global signi?cance of accounting
and audit regulatory and standard setting initiatives
(Bengtsson, 2011; Botzem, 2012; Richardson, 2009;
Thornburg & Roberts, 2008). This literature has highlighted
the in?uence of professional (accounting) actors on the
transnational regulatory landscape (Arnold & Sikka, 2001;
Barrett, Cooper, & Jamal, 2005; Cooper & Robson, 2006;
Suddaby, Cooper, & Greenwood, 2007), supporting claims
in other professional domains (Faulconbridge & Muzio,
2011) that elite professional services ?rms increasingly
utilize relations with supranational institutions to resolve
policy issues that had failed to gain suf?cient support at
the national level and, thereby, superimpose an additional
layer of soft regulatory authority on the ‘‘traditional (i.e.
coercive) power relations that exist between nation states
and professional associations’’ (p. 356). Such regulatory
tendencies have been identi?ed, for example, in studies
of the large international accounting ?rms’ representation
on international standard setting and regulatory gover-
nance boards (Loft, Humphrey, & Turley, 2006) and theirhttp://dx.doi.org/10.1016/j.aos.2014.08.002
0361-3682/Ó 2014 Elsevier Ltd. All rights reserved.
?
Corresponding author. Tel.: +44 161 2750118; fax: +44 161 2754023.
E-mail address: [email protected]
(A. Samsonova-Taddei).
Accounting, Organizations and Society 41 (2015) 55–72
Contents lists available at ScienceDirect
Accounting, Organizations and Society
j our nal homepage: www. el sevi er. com/ l ocat e/ aos
interactions with, and even mutual dependency on, differ-
ent national audit oversight institutions (Malsch &
Gendron, 2011; Shapiro & Matson, 2008). Attention has
also been given to the mobilizing capacity of the profession
internationally to form a united policy front in the wake of
the recent global ?nancial crisis (Humphrey et al., 2009).
One of the key implications of such literature is the sub-
stantial ability of the audit profession and its largest ?rms
to shape global regulatory agendas and actions, with some
authors emphasizing the success that the profession has
had in securing desired outcomes or at least diverting
attention away from a critical questioning of contemporary
audit practice (Arnold, 2009; Sikka, 2009).
Audit liability limitation has been ?agged for many
years by large accounting ?rms as one of their key con-
cerns and pressing reform priorities (Gwilliam, 2004;
Power, 1998). After a sustained policy campaign by the
?rms to prompt EU-wide policy action, the European Com-
mission, in June 2008, issued a Recommendation
(European Commission, 2008a) suggesting that ‘‘every
Member State would be invited to introduce a liability lim-
itation, taking into account their own systems and circum-
stances’’ (European Commission, 2008b, p. 32–33). The
Recommendation, however, was a non-binding policy
instrument and not the outcome that the ?rms had strived
for. They had wanted an EU-wide binding limitation but
the Commission chose to leave any decision on auditor lia-
bility limitation to the individual national governments of
Member States (Ojo, 2009). Analytically, such develop-
ments provide a fascinating opportunity to study how
and why the agendas of accounting ?rms, with their read-
ily acknowledged capacity to engage with transnational
policy processes, were frustrated in terms of the ?rms’
ability to secure a desired policy outcome.
In examining the processes of policy development lead-
ing to the issuance of the Commission’s aforementioned
Recommendation, the paper utilizes Hilgartner’s (1992)
portrayal of a ‘risk object’ to show the highly polemical
nature of the European auditor liability debate – with
actors’ policy positions varying depending on their differ-
ing conceptualizations of, and exposure to, risk associated
with particular auditor liability arrangements (Hilgartner,
1992). The resulting array of (often, con?icting) de?nitions
of risk served to frustrate attempts at reaching a shared
policy position on the subject of auditor liability and pre-
cipitated instead a policy outcome that was substantially
less de?nitive and exacting than the large accounting ?rms
had desired. Such analysis serves to highlight the residing
signi?cance of the authority of the nation state in the
determination of EU policy. In the case of auditor liability
limitation, the overall policy outcome was clearly in?u-
enced by national policy-making experiences and the
respective standpoints of certain individual EU Member
States, illustrating in the process the connectivity between
national and transnational policy realms and the impor-
tance of viewing such realms as mutually dependent,
rather than distinctive, ?elds of in?uence.
The paper is structured as follows. The next section
outlines the complexities associated with auditor liability
as a regulatory object. The third section provides an over-
view of EU governance systems and the European audit
policy-making arena. The fourth section presents the
methodological approach applied to studying auditor lia-
bility reform in the European context. The ?fth section
analyzes the policy processes that led to the issuance of
the Commission’s aforementioned Recommendation. The
?nal two sections explain the signi?cance of the paper’s
?ndings in terms of enhancing understanding of the
dynamics of European audit policy making.
Risk and the complexities of auditor liability
The term ‘auditor liability’ is not easy to de?ne in a con-
cise, all-encompassing manner. Beyond the basic premise
that auditors need to be held liable for providing sub-stan-
dard services, the legal arrangements to support its func-
tionality comprise multiple dimensions that can vary
signi?cantly. In this section, we draw on the work of
Hilgartner (1992) and others, to show how this variability
is linked to the differences in the manner in which various
actors conceptualize liability as a source of risk. Hilgartner
characterized risks not as static facts, independent of inter-
pretation, but as contextually embedded entities whose
meanings vary and are inherently unstable. According to
Hilgartner (1992), differences in how we conceptualize risk
stem from the way we de?ne the object that poses risk and
identify it as risky by constructing causal linkages between
such an object and putative harm. In the case of auditor lia-
bility, key dimensions of variation in understandings of
risks associated with auditor liability revolve around ques-
tions, such as: who, and under what conditions, should
bear the consequences of a liability claim?; who are the
harmed (endangered) parties that have the right to
demand compensation for related damages?; and ?nally,
what should be the size of any such compensation, includ-
ing possible ways of limiting the amount claimed? The
way in which the above dimensions have been incorpo-
rated within a particular auditor liability regime has been
subject to change over time and across contexts as, bor-
rowing from Lupton (1999), ‘‘[w]hat is deemed a ‘danger’
or ‘hazard’ in one historical or cultural context may not
be so identi?ed in another’’ (p. 31–32).
A typical starting point in the audit literature for discus-
sions on auditor liability involves reference to auditors’
assumed liability in relation to contractual parties, with
the principle of privity of contract limiting liability to the
corporate body being audited (Porter, Simon, & Hatherly,
2008). The 1970s and 1980s saw a substantial extension
of liability to the point where it was asserted that virtually
any party who could reasonably be considered to have
relied on an audit opinion could claim damages against
auditors arising from negligent misstatements (Porter
et al., 2008). This was deemed an appropriate mode for dis-
ciplining auditors and also responding to public calls for
fairer treatment of ‘innocent’ third parties such as potential
investors, creditors, employees and other stakeholders
(Chung, Farrar, Puri, & Thorne, 2010; Gwilliam, 2004;
Siliciano, 1997). In subsequent years, however, these
arrangements were reconsidered. In Britain, for example,
the landmark decision by the House of Lords in the
Caparo case (1990) signi?ed a move back to a more narrow
56 A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72
understanding of the notion of stewardship. It returned the
focus to the company as a corporate body rather than a
collection of interests of individual shareholders and laid
down stricter conditions under which a duty of care could
be said to be owed by auditors. That said, it has been
argued that this period of relative calm was followed by
gradual expansions of the notion of privity by the British
courts (Napier, 1998).
One can observe signi?cant differences in auditor lia-
bility regimes across various national settings, such as
within the EU (Directorate General for Internal Market
and Services, 2006).
1
In EU Member States that placed an
emphasis on the role of auditors as public servants and
the social meaning of audit practice (e.g. France), statute
law tended to make auditors liable not merely to the client
company’s of?cers but also to shareholders and other
(third) parties. In other Member States (such as Germany
and Spain), auditors were seen to owe a duty of care
mainly to the client company, including its shareholders.
With regards to the scope of auditor liability, most Member
States followed the principle of joint-and-several liability
which implies that any individual audit partner accused
of wrongdoing can be required to pay for the whole
amount of damages, regardless of the degree of responsibil-
ity of other parties. In Member States with a limited liabil-
ity regime for auditors, the limitation mechanisms were
either in the form of: a ?nancial cap on the level of possible
liability claims (as in the case of Austria, Belgium, Ger-
many, Greece, and Slovenia)
2
; a system of proportionate lia-
bility whereby auditors are liable only for the damages
caused directly as a result of their negligent behavior (as
in Spain); or by allowing auditors to establish limited lia-
bility entities.
3
Policy making has been said to involve the construction
of a de?nition of what risk is and devising measures (policy
instruments) to control it (for a pertinent discussion, see
Hutter, 2010). The process of legal development on issues
such as auditor liability, therefore, can be envisaged as a
search for constructed meanings of risk and harms
associated with proposed auditor liability arrangements
that are capable of garnering the agreement of key policy
decision makers. Hofmann (2010, p. 66) provides a useful
characterization of such a search process as one that ‘‘does
not centre on one speci?c danger or harm but rather dis-
perses into bundles of con?icting expectations, forebodings
and conclusions, all of which are competing for hegemony’’.
What fuels such competition, as explained by Hilgartner
(1992), is the fact that harm can be linked to more than
one risk object as ‘‘one can always construct many potential
branches to the chains of causation that lead to disaster’’ (p.
42). Constructing, rede?ning and promoting such linkages
is a rhetorical struggle aimed at emplacing risks (i.e., turning
them into something to be reckoned with) as well as dis-
placing particular risks (i.e., stripping them of their signi?-
cance) through what Hilgartner termed the conceptual
‘network’ used by regulatory decision-makers as their key
reference in policy deliberations. Such struggles, most often
localized within the communities of professionals, political
elites and technical experts, ‘‘have important political
implications’’ as they can ‘‘redistribute responsibility for
risks, change the locus of decision making, and determine
who has the right – and who has the obligation – to do
something’’ (p. 47). In other words, they ‘‘question the
rationality of regulatory arrangements’’ (Hofmann, 2010,
p. 48) in a way which can either halt or give momentum
to particular policy initiatives.
In the following sections, we will draw on the above
conceptual framing to analyze the struggles between the
competing de?nitions of risks and harms attributed to par-
ticular auditor liability arrangements and related policy
proposals and their impact on European debate over audi-
tor liability limitation. In so doing, de?nitions of risk and
associated dynamics of policy deliberation emerge as a
product of social construction by the policy actors
concerned but also capable of being shaped by dramatic
environmental developments and scandals, such as the
Enron collapse, which are used as powerful reference
points in the rhetorical repertoire of both proponents and
opponents of auditor liability limitation.
Policy making in the EU
Apart from being a confederation of 27 Member States,
the EU is also a vibrant example of a transnational regula-
tory ?eld (Andersen & Eliassen, 1996; Coen, 2007;
Greenwood, 2007). Djelic and Sahlin (2006, 2010) provide
a view of such a ?eld as a multi-level dynamic policy arena
emergent ‘‘from complex and multi-nodal processes,
where competition combines with collaboration’’ (Djelic
& Sahlin, 2010, p. 179) and which is able to ‘‘generate
and reproduce order behind an appearance of complexity
and competition’’ (p. 195). This governance mode virtually
diffuses the decision-making authority and places an
increased emphasis on the need for policy actors to ratio-
nalize their policy choices and justify the processes by
which they were determined. Reliance on the inputs and
inferences of experts has been viewed as an increasingly
important rationalizing instrument in this regard, with
1
The presented details of the national liability regimes relate to the time
preceding the issuance of the 2008 Recommendation by the Commission.
2
The cap could be stipulated in the civil law or set out in the contract
between the auditor and the client and take the form of an absolute
monetary limit or a ?xed percentage of the audit fee. For example, in
Greece, the liability cap was linked to the salary of the President of the
Supreme Court. In Belgium and Austria, the law stipulated the cap with
respect to claims by third parties, whereas German commercial law only
capped claims by the client (although, in certain cases, the courts could
decide to extend liability, and consequently the cap, to third parties)
(Gietzmann & Quick, 1998).
3
In Britain, for example, KPMG was the ?rst accounting ?rm that, in
1995, chose to incorporate and form what became known as KPMG Audit
Plc. During the same period, Price Waterhouse (which later became part of
PricewaterhouseCoopers) and Ernst & Young launched a lobby campaign to
push for legislation that would allow British auditors, like their colleagues
in the U.S., to form Limited Liability Partnerships (LLPs), with the intent that
it would offer a greater protection to the accounting ?rms’ individual
partners and their personal assets (Sikka, 2008). In 2001, Ernst & Young was
the ?rst accounting ?rm to register as a LLP, after relevant provisions had
been introduced by the British government in its LLP Act, 2000. More
recently, changes to the Companies Act, 2006, allowed shareholders of the
audited company to agree to limit auditor liability by contract to a level
determined by the court in proportion to the extent of auditor’s respon-
sibility for the damages incurred (Turley, 2008).
A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72 57
the meaning of expertise having evolved to emphasize pri-
vate interests and market dynamics (Djelic & Sahlin, 2010).
Since its foundation under the Treaty of Rome, the EU
has held the creation of the European Single Market as
one of its key policy priorities. Inter alia, this has involved
the development of common law to create a uniform infra-
structure for the functioning of the European capital mar-
ket for corporate ?nancing, including harmonized rules
for ?nancial accounting and audit practice (Dewing &
Russell, 2002, 2008; Haller, 2002; Maijoor, Buijink,
Meuwissen, & Witteloostuijn, 1998). Such a system of
law is constituted of different forms of legal acts, both
binding and non-binding, depending on speci?c policy
objectives. Among the three binding forms of legislation
are (1) Regulations – which represent the most direct form
of EU law as they are applied in their entirety across all EU
Member States in the same way as national law would be;
(2) Directives – which set out the policy objectives to be
achieved by all Member States but leave it to the national
governments to decide on the speci?c ways to implement
them; and (3) Decisions – legislative acts targeting speci?c
issues or directly applicable to a speci?ed party (such as an
EU Member State or an individual business entity). In con-
trast, non-binding legislative acts, such as Recommenda-
tions, allow ‘‘the [EU] institutions to make their views
known and to suggest a line of action without imposing
any legal obligation on those to whom it is addressed’’.
4
The setting of the EU’s policy agendas, as well as the
development of new and revised legislation, is in the hands
of the so-called ‘decision making triangle’, i.e. the three key
legislative bodies, including the European Commission, the
European Parliament and the Council of Ministers. The
Commission, which in matters relating to the European
Single Market is led by the Internal Market and Services
Directorate General, has the right to legislative initiative
and hence is responsible for the preparation of draft law
as well as the general coordination of processes of policy
development. The remit to consider proposed legislation
rests with the Council which is effectively a collective body
representing governments of European Member States.
While the Council’s decisions on many European policies
are reached by a ‘quali?ed majority’ vote (where each
Member State is allocated a set number of votes depending
on the size of its population), other policy proposals, such
as on issues relating to company law directives, usually
require unanimous approval. Moreover, the Council shares
its legislative power with the European Parliament under
the so-called ‘co-decision’ procedure. It means that a legis-
lative proposal is ?rst discussed in Parliament and, if the
resulting wording of the draft law is subsequently
approved by the Council, becomes formal law or, other-
wise, is passed back for further Parliament readings and
discussions with the Council. Consideration of policy pro-
posals in Parliament is administered by a lead Committee,
with a MEP (Member of European Parliament) acting as a
Rapporteur. The Committee on Economic and Monetary
Affairs (ECON), for example, is Parliament’s key committee
in the area of accounting and audit regulation; also, it is
often assisted by other committees, such as the JURI (Legal
Affairs) Committee (Peterson, 1995; Slaughter & May,
2013).
One of the claimed traits of transnational policy making
is that law-makers seek means to ensure that the norms
they produce are seen as the ‘right’ solutions to the prob-
lems at hand and, ultimately, to facilitate less problematic
compliance (Nölke, 2003; Risse-Kappen, 1995). This is
achieved by demonstrating that the processes of policy for-
mulation (and by association, their outcomes) are proce-
durally fair and representative of the interests of various
policy stakeholders. Such a trend toward a more participa-
tory approach to policymaking, or so called ‘deliberative’
democracy, is at the core of European policy making -
being seen as the EU’s response to long-held concerns over
the de?cit of democratic legitimacy stemming from EU
senior politicians’ posts not being democratically elected
positions (Greenwood, 2007). ‘‘The thorny issue of inte-
grating expertise and democracy’’ (Radaelli, 1999, p. 770)
has meant that, besides representatives of the national
governments, private actors (such as, professional entities,
corporates, industry unions, and other market partici-
pants) are routinely invited to provide ‘expert’ input into
EU policy formulation which is administered by the Com-
mission. The opportunity for experts to in?uence policy
is signi?cant, with it being argued that processes of policy
formulation are ‘‘a critical determinant of eventual policy
outputs’’ (Peterson (1995, p. 8) quoting Hull (1993, p. 83)).
It is, therefore, unsurprising that, over the years, the
Commission is said to have experienced an ‘‘explosive
growth of direct interest representation’’ (Andersen &
Eliassen, 1996, p. 45) and become a ‘‘hothouse’’
(Peterson, 1995, p. 69) for different groups of transnational
policy actors converging around various issues of impor-
tance (Coen, 2007; Coen & Richardson, 2009). Eberlein
and Grande (2005), for example, explain that such external
interest groups:
[. . .] are composed of experts and representatives of
national regulatory bodies, who come to agreement
among themselves, guided or supported by European
bodies. If necessary, they are joined by economic actors
or the regulatory addressees concerned
[. . .] [in order to] develop common ‘best practice’ rules
and procedures for regulation in their sector. (p. 100).
One can also observe the institutionalization of inde-
pendent commercial consultancies as signi?cant actors in
EU governance, operating as intermediaries between the
EU’s bureaucratic machinery and the world of academic
research. This represents a continuing shift in the nature
of European interest representation towards professional-
ism and competitiveness (see Lahusen, 2002), with the
Commission being intent on demonstrating that its
approach to policy-making is both competent and based
on independently veri?ed analytical assumptions. In this
regard, research ?ndings produced by commercial consult-
ancies have arguably served not just to inform European
public policy arena but also to de-politicize polemical pol-
icy deliberations (Andersen & Eliassen, 1996).
4
Seehttp://europa.eu/about-eu/basic-information/decision-making/
legal-acts/index_en.htm.
58 A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72
In addition to the above ‘technocratic’ rationality (con-
structed by reference to expert knowledge provided by pri-
vate actors), the Commission’s general approach to policy
making also comprises an ‘administrative’ rationality,
which stems directly from the need to ensure that there
is suf?cient administrative power to implement the policy
proposals at the national level (see Peterson, 1995, p. 73).
In this sense, the administrative rationality serves a
restraining role, in that it motivates the search for a con-
sensus between policy technocrats in order to ‘‘legitimize
the choices offered to political decision-makers [Council
of Ministers and Parliament] as workable policy solutions’’
(Peterson, 1995, p. 74).
In such a policy-making arena, the power asymmetries
between transnational policy institutions of the EU and
national policymakers can be signi?cant. As Halliday and
Caruthers (2007, p. 1148) have argued, transnational
policymakers (such as the EU) can more strongly in?uence
development of transnational rules (what they call ‘law on
the books’), while the source of power for national policy-
makers is that they effectively control translation of such
rules into national law (‘law in action’). Further, national
policymaking experiences and perspectives are assimilated
within the design of transnational policy ‘‘through the par-
ticipation of national lawmakers on the committees and
panels of international organizations’’ (Halliday &
Caruthers, 2007, p. 1148). In this regard, national policy-
makers are not merely the recipients of the outputs of
transitional policy making (the premise that has attracted
most attention in prior research) but represent signi?cant
forces capable of in?uencing and even determining the
nature of such outputs. As noted earlier, in the context of
the EU, it is the Council of Ministers where ‘‘most of the
‘national interest’ is de?ned and decided’’ (Spence, 1993,
p. 50) and where the Commission’s policy proposals are
scrutinized by responsible national government of?cials
and voted on. In addition, representatives of the national
governments are also frequent members of various discus-
sion groups and committees set up under the Commis-
sion’s remit with the purpose of facilitating the debating
of a particular policy issue. There is often limited or no
public record of what goes on in such meetings, but they
provide a vital stage for intermediation between the
national and transnational policymaking arenas, and
subsequently revealing signi?cant differences of opinion,
con?icts and even instances of national resistance.
Studying auditor liability reform in a European context
In order to analyze the development of European policy
debate on auditor liability limitation and the in?uence of
different interest groups and related agendas, we ?rst con-
structed a summary of key events and identi?ed a number
of apparently in?uential players (see Table 1 for the audit
liability events timeline and Fig. 1 for a diagrammatic rep-
resentation of the associated transnational policy actors).
In outline terms, the large accounting ?rms
5
played a
major part in advocating the profession’s case for liability
limitation, with supporting coordination work being under-
taken by the European Contact Group (ECG), a body set up to
represent the ?rms in their dealings with European
governance institutions, particularly the Commission and
the Parliament. Established in 1993 in Brussels, the ECG
was classi?ed at the time as a rare case of cooperation
Table 1
A timeline of key events.
Year Key events
1996 Two studies – Buijink et al. (1996) and FEE (1996) – draw attention to the diversity of European countries’ liability regimes as an area of
concern. The European Commission’s Green Paper (European Commission, 1996) on the position and liability of auditors in Europe is followed
by an of?cial consultation and a conference. These acknowledge the negative effects of unlimited liability but reject the need for an action at
an EU level
1998 In May, the European Commission publishes a Communication (European Commission, 1998b) which leads to the establishment of the
Committee on Auditing composed of external experts, including the audit profession’s representatives
2001 In March, the European Commission publishes a comparative study on 15 European Member States (Thieffry & Associates, 2001) which
acknowledges the variation in national liability regimes but claims it has no signi?cant impact on the development of a European Single
Market. In October, Enron scandal starts unfolding
2002 In April, the European Commission issues a paper ‘‘A ?rst response to Enron related policy issues’’ (European Commission, 2002a) which
outlines a series of preventive measures in Europe; but makes no mention of the need for a reform of auditor liability
2003 In May, the European Commission issues a Communication ‘‘Reinforcing the statutory audit in the EU’’ (European Commission, 2003) setting a
new regulatory framework for the statutory audit. This is thought to signal a start of a new ‘‘hands-on’’ approach to audit regulation in Europe;
the issue of auditor liability is still not addressed
2005 The European Forum on Auditors’ Liability is set up comprising 20 experts (i.e. members of the European regulatory, audit professional,
academic, investment, banking, insurance, and corporate communities) to assess potential solutions for moderating auditors’ litigation risk
2006 The EU publishes the revised Eighth Company Law Directive (2006/43/EC) on Statutory Audits of Annual Accounts and Consolidated Accounts.
Article 31 of the Directive requires that the European Commission examines the effects of Member States’ liability regimes on the European
capital market. As a result, the Commission appoints the commercial consultancy ?rm, London Economics, to carry out a study into the issue.
The study report (London Economics, 2006) is published in October
2007 In January, the European Commission launches a public consultation on the issue of auditor liability involving a broad range of policy
stakeholders. A summary of responses to the consultation are published in June (Directorate General for Internal Market, 2007b)
2008 In June, the European Commission publishes the Recommendation Concerning the Limitation of the Civil Liability of Statutory Auditors and Audit
Firms (2008/473/EC) which suggests that the Member States should take action to limit auditor liability using any of the several methods
proposed
5
The largest international accounting ?rms include the ‘Big Four’ ?rms
(PricewaterhouseCoopers, KPMG, Deloitte Touche Tohmatsu, Ernst &
Young) plus two leading mid-tier ?rms (Grant Thornton and BDO). These
?rms carry out the vast majority of audits of listed companies worldwide
and have long maintained the position of the global audit market leaders.
More recently, all these ?rms have been commonly referred to as the ‘Big
Six’. In this paper, when we use the term ‘large accounting ?rms’, we are
generally referring to the ‘Big Six’.
A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72 59
between the large accounting ?rms on a transnational policy
stage (see Kelly, 1996). It is an organization with limited
public visibility, having no of?cial website. Initially, the
Group had eight members, one representative (a senior part-
ner) for each of the then eight largest accounting ?rms
(Manardo, 1996). Subsequently, the number of members
rose and now amounts to nineteen individuals representing
the six largest accounting ?rms and also covering eleven EU
member states – a membership pro?le which has been said
to enable the ECG to survey policy sentiment not only within
the ?rms themselves but also within different national
environments (Jennings, 2010).
6
Other actors actively repre-
sented in the European debate on auditor liability limitation
included professional accountancy associations (such as the
Fédération des Experts Comptables Européens – FEE), various
regulatory agencies, users of audit reports (including mem-
bers of the investment, banking and corporate sectors),
and representatives of European Member States, with dis-
cussion fora such as the European Committee on Auditing
and European Auditor Liability Forum playing an important
liaison role in terms of attempting to resolve con?icting
positions across key players. A commercial consultancy, Lon-
don Economics, was also commissioned to provide ‘evi-
dence-based’ inputs into European policy deliberations.
In documenting the pursuit of auditor liability limita-
tion reform, we reviewed an extensive set of publications
in the professional auditing and business press covering
the issue of audit regulation in general and auditor liability
in particular. We also consulted documents prepared by EU
institutions and of?cials, such as policy drafts, studies,
communications, public consultation reports and stake-
holder responses, conference proceedings, meeting min-
utes, and public pronouncements. Relevant web
resources, including the web-pages of the EU’s key bodies
(the European Commission, the Parliament, and the Coun-
cil of Ministers), were analyzed to assist in the mapping of
a dynamically evolving gathering of policy actors involved
in the liability debate. We also bene?ted from access to a
range of internal documents made available by members
of the large accounting ?rms who, at various points in
time, had represented the audit profession at the European
level. These included minutes from meetings with the
European Commission of?cials, presentations made during
those meetings, relevant correspondence, internal notes,
and various other materials detailing their interactions at
the EU level. Also, some valuable additional insights into
Title: Key
P r i n c i p a l l e g i s l a t o r s
agenda setting and policy endorsement
E x e c u t i v e b o d y
policy drafting
European Union
European Parliament
(JURI and ECON Committees)
Council of Ministers
European
Commission
Directorate General
Audit Unit
Private professional interests
FEE
Large accounting
firms
ECG
IAASB
Representatives
of the Member
States
Insurers
Investors
Corporations
Banks
Other policy stakeholders
Discussion forums and advisors
Forum
On
Auditor
Liability
London
Economics
International standard-
setting and regulatory bodies
Title: Key
IFAC
ICAEW
Academics
Fig. 1. Key transnational interests participating in the European debate on auditor liability.
6
Globally, the large accounting ?rms established the Global Public Policy
Committee (GPPC), a coordinatory body consisting of two working groups –
the ‘Standards Working Group’ and the ‘Regulatory Working Group’ focused
on public policy, regulatory and professional matters. The GPPC has worked
closely with international regulatory agencies, such as the International
Accounting Standards Board, Financial Stability Forum (now Board),
International Organization of Securities Commissions, and others on issues
relating to various aspects of public policy (Humphrey & Loft, 2011). In
Europe, however, the ?rms’ joint efforts at in?uencing the EU’s regulatory
arena have been coordinated largely by the ECG.
60 A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72
the audit community’s representation in the EU gover-
nance institutions were sourced from the archives of IFAC
and a number of European professional accountancy
bodies/organizations, including FEE and the Institute of
Chartered Accountants in England and Wales (ICAEW).
The robustness of ?ndings derived from such documen-
tary analysis was enhanced by cross-checking against evi-
dence and opinions obtained from a series of interviews
that we subsequently conducted, in 2009–2010, with nine
high-pro?le individuals – all of whom held senior positions
of engagement and in?uence in the EU policy arena with
respect to the auditor liability limitation debate, including
representatives of the large accounting ?rms, professional
accountancy organizations (such as ICAEW and FEE), the
European Commission, and the commercial consultancy
?rm London Economics. For the purpose of the historical
analysis presented here, the interviews were used primar-
ily to verify factual data collected from documentary
reviews and to assist in our assessments of substantive
policy standpoints taken by different interest groups.
The making of a case for reform: shifting regulatory
sentiment through professional interest representation
Viewing risk as a conceptually ?uid, socially constituted
category readily invites analysis of the dynamics of
rhetorical struggles that underlie the development of audit
policy agendas and are concerned with constructing
(deconstructing) ‘‘networks of causal attributions’’ linking
risk objects to harm. Hilgartner (1992, p. 41) notes, in this
regard, that objects are not ‘‘simply waiting in the world to
be perceived or de?ned as risky [. . .] [nor do] linkages
among objects simply exist ‘‘out there’’ in reality’’. Rather,
constructing risk objects that require regulatory attention
‘‘as things that pose hazards, the sources of danger, the
entities to which harmful consequences are conceptually
attached’’ (p. 41) necessitates collective sense-making by
people and organizations. Viewed from this perspective,
auditor liability risk is not a ready-made policy issue wait-
ing to be resolved; it is something that is being continu-
ously de?ned and rede?ned through processes of
rhetorical attribution involving a variety of actors operat-
ing, in our chosen case, within the European public policy
arena. Further, as Hilgartner (1992, p. 42) emphasizes,
‘‘the world does not present itself prepackaged into unam-
biguous and clearly-differentiated objects’’, and hence,
such processes of constructing risk objects and the related
frames of reference are ‘‘fundamentally ambiguous’’. This
ambiguity, among other things, manifests itself in the dif-
ferences between early conceptualizations of auditor lia-
bility by the EU’s political establishment more concerned
with a broad-based assessment of the risks it poses and
by the large accounting ?rms and professional bodies
focusing on the risks speci?cally associated with unlimited
(i.e. joint-and-several) liability.
The EU’s Eighth Company Law Directive on statutory
audit (84/253/EEC) issued in 1984 did not speci?cally refer
to auditors’ legal responsibilities or to the circumstances
under which auditors could be held liable; merely stating
that it was up to individual Member States to determine
appropriate liability arrangements. In subsequent years,
the topic of auditor liability started to be raised in EU reg-
ulatory circles as an issue linked to the effective function-
ing of the European single market, itself being a central
focus of European policy. In 1994, for example, John Mogg,
then Head of the Directorate General for Internal Market
and Financial Services, asserted in his speech at FEE Gen-
eral Assembly that differences in the national liability sys-
tems ‘‘might prevent the creation of a level playing ?eld’’
and that ‘‘the issue is suf?ciently important to warrant
our attention’’ (European Commission, 1994).
Such pronouncements by senior EU of?cials came
amidst publicly expressed concerns by representatives of
the accountancy profession about the absence of a uniform
European policy with respect to auditor liability. Speci?-
cally, FEE (1992) in its representative role for the European
accountancy profession, noted that signi?cant differences
in EU countries’ liability regimes were unacceptable and
recommended the replacement of the joint-and-several
liability principle with a system of proportionate liability.
These assumptions were echoed three years later by IFAC
in a report presenting the results of an opinion survey of
its member bodies (IFAC, 1995). The large accounting ?rms
were also collectively pointing to the adverse conse-
quences of an ‘‘epidemic of litigation’’ and a need for audi-
tor liability limitation (Arthur Andersen & Co., Coopers &
Lybrand, Deloitte & Touche, Ernst & Young, & KPMG Peat
Marwick & Price Waterhouse, 1992, p. 1). They argued that
stakeholders were increasingly relying on auditors’ ‘deep
pockets’, regardless of the relative degree of their culpabil-
ity, and that claims against them were disproportionate
both to their wealth and the audit fees received from their
clients (Lochner, 1993).
There were a number of important events which, collec-
tively, signi?ed the start of an EU-wide debate on the
development of a European audit market and the nature
of auditors’ responsibilities, with auditor liability being
seen as one of the pertinent issues for discussion. Such
events included the publication of an independent study
(Buijink, Maijoor, Meuwissen, & Van Witteloostuijn,
1996) initiated by the Commission which concluded that
differences in EU Member States’ liability arrangements
could have an adverse effect on the European audit mar-
ket
7
and, shortly after, the issuing of the Commission’s
Green Paper ‘‘On the Role, Position and Liability of the Stat-
utory Auditor within the European Union’’ (European
Commission, 1996a). The Commission’s position on auditor
liability limitation in the Green Paper acknowledged that
‘‘the liability of the auditor should be limited to amounts
which re?ect his degree of negligence’’ (European
Commission, 1996a, art. 5.6), while, at the same time, mak-
ing it clear that the capacity for any policy action should rest
with Member States and not with the EU institutions:
7
The United Nations Conference on Trade and Development (UNCTAD),
through the framework of the annual meeting of its Intergovernmental
Working Group of Experts on International Standards of Accounting and
Reporting (ISAR) also held, in March 1996, a one-day Forum on the
Responsibilities and Liabilities of Accountants and Auditors. See http://
www.unctad.org/templates/web?yer.asp?docid=3644&intItemID=2298&
lang=1
A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72 61
Action at EU level in this ?eld is likely to be dif?cult. The
audit profession is not the only profession which is
struggling with problems of liability. Furthermore, the
legal traditions in Member States in the area of civil lia-
bility are quite different.
[(European Commission 1996a, art. 5.7)]
Following a consultation period on the Green Paper, the
Commission arranged, in December 1996, a conference
which provided a platform for a wide variety of transna-
tional interest groups to express and discuss their views
on the issue of auditor liability limitation. In Hilgartner’s
(1992) terms of reference, such interest groups may be
referred to as ‘‘an eclectic lot, linked together by complex
and shifting alliances and struggles’’ (p. 45), serving key
roles as constructors of networks of causal attribution link-
ing risk to harm in ways that serve to inform and shape
processes of European audit policy development. In the
case of European auditor liability debate, such heteroge-
neous groups included the Members States’ audit regula-
tory bodies, users of audit reports (such as the corporate
sector, investment organizations, banks, and insurance
companies), the academic community, national and regio-
nal professional accountancy associations, and large
accounting ?rms themselves (European Commission,
1996b). Rather than acting individually, the ?rms came
to an agreement that ‘‘their arguments will be strength-
ened by the manner in which they reply’’, and therefore,
produced a joint response to the Green Paper
(Accountancy Age, 1996). This response was coordinated,
on behalf of the ?rms’ European of?ces, by the ECG who,
subsequently, gave two presentations at the Conference.
The conference speech by the ECG’s Chairman at the time,
Jacques Manardo (a founding partner of the French prac-
tice of Deloitte Touche Tohmatsu) outlined the key points
of the ?rms’ response (Manardo, 1996) presented in the
form of an Action Plan (European Contact Group, 1996).
Interestingly, although the ECG had been working on the
Plan since 1993, it released the ?nal version a day before
the Conference effectively as a way to set the agenda for
subsequent debate and discussions at the Conference
(Kelly, 1996). The Plan was intended to provide the basis
for change in EU Member States to support moving
towards a single market in auditing, free of government
intervention, and a self-regulated audit profession in
Europe. With regards to the issue of auditor liability, the
Plan pointed to signi?cant differences across national audi-
tor liability regimes in Europe and recommended that in
order to moderate the rapid increase in litigation exposure
‘‘an auditor’s liability should be restricted to levels which
re?ect the auditor’s real share of fault’ by moving ‘from
the concept of joint and several liability to that of propor-
tionate liability’’ (European Contact Group, 1996, p. 14).
The other ECG contribution was from Ian Brindle (the then
UK Chairman of Price Waterhouse) who participated in a
panel session on auditor liability. Drawing on his experi-
ence of auditing in the UK, Brindle pointed to what he
saw as inconsistencies in national auditor liability regimes,
not only in the UK but also in countries, such as Germany,
‘‘where there is a statutory cap on audit liability [. . .] [but]
it is unclear whether the auditor could still be exposed to
civil liability claims from third parties under general con-
tract and tort law’’ (European Commission, 1996b, p. 204).
Overall, the conference reiterated the divergence in
opinion on the subject of auditor liability between players
such as large accounting ?rms and other stakeholder
groups, which was concisely captured by Karel Van Hulle
(at that time, Head of the Commission’s Financial Informa-
tion Unit) when providing an overview of the collected
comments on the Green Paper’s coverage of this issue:
The commentators from the accounting profession
regret the absence of a clear message in the Green Paper
that a limitation of liability should be organised at EU
level. Most other respondents think that there is no jus-
ti?cation for reducing the professional liability of audi-
tors as opposed to other professionals.
[(European Commission, 1996b, p. 30).]
The Green Paper, however, was indicative of the grow-
ing signi?cance of auditing regulation as an EU policy
priority and the Commission duly established, in 1998, a
Committee on Auditing (European Commission, 1998, par-
agraph 3.2) – with the intent of providing a platform for
systematic interactive exchanges between representatives
of the European and international regulatory communities
(such as the Commission’s of?cials, the Member States’
audit regulatory bodies and international audit standard
setters), professional bodies and institutes representing
the accountancy profession (including FEE, the European
Federation of Accountants and Auditors for Small and Med-
ium-sized Enterprises, European Confederation of Insti-
tutes of Internal Auditors), and the ECG.
8
The Commission committed to the investigation of
extant national auditor liability practices (European
Commission, 1998: paragraphs 3.14–3.15), leading to the
publication, in January 2001, of a comparative study of ?f-
teen Member States (Thieffry & Associates, 2001).
Although acknowledging signi?cant differences between
countries, the study chose not to endorse the views of
the profession and aforementioned reports by FEE (1992)
and IFAC (1995) – and, instead, lent support to the Com-
mission’s argument that national complexity was an over-
whelming obstacle to convergence.
Policy intransigence amidst an audit crisis
The dynamics of struggles over the construction of risk
may change dramatically as ‘‘unpredictable developments
in these struggles propel objects back and forth along a con-
tinuum of emplacement and displacement’’ (Hilgartner,
1992, p. 49). In the case of auditor liability limitation in
the EU, one such signi?cant incident was the demise, in
2001, of the US energy giant, Enron, and its auditor, Arthur
Andersen, one of the then Big Five accounting ?rms. The
collapse of Enron set the scene for the revisiting of extant
de?nitions of risk attributed to the auditor liability issue
8
The Committee continued its work until 2005 when it was replaced by
a newly formed European Group of Auditors’ Oversight Bodies (EGAOB), a
coordinating agency representing national audit regulators of EU Member
States.
62 A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72
and the construction of new linkages between risk and
putative harm. It was used by the large accounting ?rms
as a powerful reference point with which to strengthen
their rhetoric in favour of limiting auditor liability, speci?-
cally by arguing that the case represented a clear practical
demonstration of the real possibility of other large account-
ing ?rms exiting the market (Talley, 2006).
By emphasizing their roles as the primary suppliers of
audit expertise and recipients of audit regulation, the large
accounting ?rms sought to gain greater access to, and
in?uence over, the key institutions of the EU’s system of
transnational governance (Andersen & Eliassen, 1996;
Djelic & Sahlin, 2010). The ECG took part in the aforemen-
tioned European Committee on Auditing, and two of its
meetings, in 2001 and 2002, were particularly instrumen-
tal in placing the auditor liability issue ?rmly on the Com-
mittee’s agenda. At the Committee’s meeting in Paris in
2001, an invited presentation by Richard Murray (the then,
UK-based, Global Director of Legal and Regulatory Affairs
for Deloitte Touche Tohmatsu) pointed out that excessive
auditor liability was unhealthy and that capital markets
would suffer as a result because auditors were made to
bear most of the risk while a company’s management
enjoyed signi?cant entrepreneurial rewards with low risk
attached. Alongside Murray, a second presentation at that
meeting, by Richard Fleck,
9
of the UK-based law practice
Herbert Smith, reviewed the developments in company
law in Britain to make a case for the need to limit existing
levels of auditors’ liability exposure. In a subsequent presen-
tation at the Committee’s meeting in 2002, amidst the ?nal
stages of Arthur Andersen’s collapse, Fleck forcefully argued
that the unfolding events were vivid reminders of how ‘‘the-
ory [. . .] [could] become a reality’’.
The minutes from the Committee meeting (European
Commission, 2002b) provide clear evidence of the differing
of?cial positions taken by European Member States on the
issue of liability limitation. The German representative, for
example, agreed that the Commission needed to address
the liability issue, but at the same time an argument was
made that there was little hope in any calls for a European
liability reform actually succeeding because ‘‘it would be
dif?cult to ?nd a common legal ground to achieve harmo-
nization’’ (European Commission, 2002b). The French rep-
resentative remained more cautious, arguing that Fleck’s
analysis omitted ‘‘a necessary element of self-criticism of
the profession by the profession’’ and adding that ‘‘if the
large ?rms want to convince EU regulators that there is a
problem, they should put all the facts on the table’’. The
meeting’s key outcome was a decision to include a refer-
ence to auditor liability in the Commission’s then forth-
coming Communication on the statutory audit priorities
in Europe in the post-Enron era. Despite this commitment,
the personal views of some senior Commission of?cials
were still quite sceptical over the possibility of regulatory
intervention. Frits Bolkestein (at that time a European
Commissioner for the Internal Market and Taxation), for
instance, asserted at a conference at the London Under-
writing Centre in March 2003:
[...] in the current economic climate, I think there would
be little support for a regulatory intervention which
would generally limit auditor liability. After so many
major ?nancial reporting scandals and potential audit
failures, regulators need to act to restore investor con?-
dence. An intervention limiting liability, to my mind,
would not serve to revive the trust of investors.
[(Bolkestein, 2003)]
In his speech, Bolkestein provided what he saw as four
reasons for not limiting liability. First, he reiterated the
Commission’s longstanding stance that unlimited liability
is a driver of audit quality, adding that liability systems
exist for the protection of those who suffered damage
(claimants) and not for the convenience of those who
may be at fault. Secondly, he saw the aforementioned ‘deep
pocket’ approach as being principally sound as it meant
that the claimants ‘should not have to shoulder the burden
of suing separately all parties which have a partial respon-
sibility for proper ?nancial statements’, noting that the
concept of joint-and-several liability was adequate.
Thirdly, he saw increased auditor liability as being a
self-created problem for the audit profession, in that the
(global) expansion of accounting ?rm networks had signif-
icantly increased the risk that an audit failure of one local
member may damage the whole network. Finally, Bolke-
stein reasoned that audit, by its very nature, is a function
carried out in the public interest and that third parties
should be in a position to claim damages in cases of fraud-
ulent ?nancial reporting. He demanded greater clarity on
the scale of claims against auditors, asserting that many
cases had been too easily settled out of court. Crucially,
though, Bolkestein admitted that a change in the negative
market sentiment towards auditors could potentially
revive the liability debate, and that, in principle, the Com-
mission could consider updating existing EU law, such as
the EU’s Eighth Company Law Directive on auditing
(Bolkestein, 2003).
The above discussion demonstrates how the conse-
quences of the Enron collapse were used to justify two
opposite policy positions on the need for auditor liability
limitation. On the one hand, the proponents of limited
liability, speci?cally the large accounting ?rms, used the
Enron disaster, in Hilgartner’s (1992) terminology, to
emplace more forcefully in the ‘conceptual web’ of
European policy making the notion of unlimited auditor
liability systems as a source of signi?cant risk. Speci?cally,
the ?rms employed forceful rhetoric to build strong causal
linkages between unlimited liability regimes and what was
presented as the ‘catastrophic’ harms of ‘excessive’ liability
exposure, namely: ‘a large accounting ?rm failure’ and an
‘irreparable’ damage that such an event would cause to
the audit profession as a whole. Furthermore, the ?rms
also made attempts to ‘‘redistribute responsibility for
risks’’ arising from existing liability arrangements as well
as promoting a policy obligation ‘‘to do something’’
(Hilgartner, 1992, p. 47) by contrasting their position
against that of company management who supposedly
9
Richard Fleck subsequently became the Chair of the UK’s Auditing
Practices Board (APB).
A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72 63
carried the lowest risk while enjoying signi?cant ?nancial
reward.
The arguments advanced by the opponents of limiting
auditor liability, on the other hand, chose to emphasize dif-
ferent issues and risks. Bolkestein’s argumentation shifted
the emphasis from the large accounting ?rms’ focus on
how responsibility to compensate liability claimants
should be allocated to the rights of claimants and how best
to protect their rights. By disregarding the linkage between
unlimited auditor liability and the ‘deep pockets’ syndrome
and emphasizing instead auditors’ social obligations and
extended rights of third parties, such argumentation was
designed effectively to displace (i.e. to remove the capacity
to in?uence – Hilgartner, 1992) the de?nitions of risk con-
structed by the large accounting ?rms.
The rhetorical linkages advanced by Bolkestein were by
no means unambiguous or neutral re?ections of reality.
Rather, they were used selectively to support and justify
particular policy stances. Indeed, Bolkestein’s comments
on auditor liability contrasted quite markedly with his
own views on another harmonization agenda promoted
as part of the single European market, i.e. that of interna-
tional accounting standardization, and what he saw as a
long-awaited decision by the EU to introduce a require-
ment that, by 2005, consolidated accounts of listed compa-
nies needed to comply with International Accounting
Standards (European Commission, 2001). He asserted at
the time that corporate scandals, like Enron, serve to dem-
onstrate the importance of such harmonizing reform ‘‘even
more strongly’’ (Bolkestein’s 2002 public address, quoted
in European Commission, 2004).
Continuing direct representation of professional interests
In May 2003, the Commission issued a Communication
(European Commission, 2003) identifying a number of
targets for a European reform of audit legislation in the
post-Enron era, including a planned revision of the Eighth
Company Law Directive and the formation of an Audit Reg-
ulatory Committee to oversee its implementation. With
respect to the issue of audit liability, the Communication,
despite calls for reform from the proponents of liability
limitation, stated that neither harmonization nor the limit-
ing of auditor liability were necessary. However, it did
acknowledge that there was a need ‘‘to examine the
broader economic impact of present liability regimes’’
(European Commission, 2003, paragraph 3.10).
In 2004–2005, the ECG, led by its new chair, Jeremy
Jennings (an Ernst & Young partner based in Brussels), held
talks with several senior MEPs (Chapman, 2004a). The pri-
mary focus of the discussions, also pushed forward in rel-
evant pronouncements by FEE (2004), was on the ECG’s
proposal that the revised Eighth Directive should contain
a requirement that Member States introduce a form of lim-
itation of auditor liability – to counterbalance what was
seen as a suggested substantial expansion of auditors’
duties in the new text of the Directive. Documents
obtained from the ECG indicate that, in addition to inter-
acting with the European Parliament, it was also, through
its network of national contacts, holding discussions
‘behind the scenes’ with national lawmakers of individual
Member States. Such informal talks were duly demonstrat-
ing that national differences in viewpoints on the need for
liability reform remained strong. Countries with existing
regimes of limited liability or those contemplating it, such
as Austria, Greece, and Spain, reacted favorably to the
ECG’s concerns. Furthermore, the notes of a meeting with
a representative from Germany, where a cap on liability
had been in place for a number of years, showed that the
German government’s position had remained unchanged
from that expressed at the aforementioned meeting of
the EU Committee on Auditing in 2002 – where, in princi-
ple, it had not opposed the idea of pan-European action to
limit liability but was skeptical about such an action being
achievable due to signi?cant differences in the existing lia-
bility regimes of Member States (see European
Commission, 2002b). According to the ECG’s notes, a num-
ber of other countries, including Belgium, Denmark, Lux-
embourg and the Netherlands, felt that it was neither
appropriate nor achievable for audit liability reform to be
addressed in the revised Eighth Directive, but still sup-
ported further debate and the undertaking of a European
study on the issue. The UK and Ireland both called for fur-
ther investigation of the impact of existing liability regimes
on the audit profession. Finally, the ECG noted that some
Member States, particularly France, were still strongly
opposed in principle to the idea of liability reform.
Meetings between the ECG and MEPs revealed a gener-
ally more sympathetic response to the large accounting
?rms’ concerns. A German MEP, Wolf Klinz (a Draftsman
for the Eighth Directive), advocated a €25 million cap on lia-
bility as a way to avoid ‘‘a situation where a liability case
could ruin whole ?rms’’ (Chapman, 2004b). Another advo-
cate of liability limitation was a Dutch MEP, Bert Doorn,
who was leading the issue in the JURI Committee
(Chapman, 2004b), and also, acting as a Rapporteur for the
Eighth Directive. In the course of these meetings, the ECG
presented its desired amendment to the Eighth Directive
regarding the issue of auditor liability for consideration by
the European Parliament. The amendment read as follows:
1. The Member States shall ensure that the effect of
prevailing law does not place an unlimited ?nancial lia-
bility burden on statutory auditors and audit ?rms.
2. The Member States may opt to address this by one or a
combination of the following:
(a) require any liability to be allocated between the
responsible parties on a basis proportionate to their
culpability,
(b) permit statutory auditors and audit ?rms to limit
their liability on a contractual basis
(c) limit by law the amount of compensation for ?nan-
cial loss for which statutory auditors and audit ?rms
may be liable.
In July 2005, the ?nal report on the new text of the
revised Eighth Directive (JURI, 2005) was presented by Bert
Doorn to the European Parliament, together with the opin-
ions of the relevant Parliamentary Committees, such as
ECON (European Parliament, 2005a). In this report, the
?nal text of the amendment regarding auditor liability read
as follows:
64 A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72
The Commission shall before the end of 2006 present a
report on the impact of the current national liability
rules for carrying out statutory audits on the European
capital markets and on the insurance conditions for
statutory auditors and audit ?rms, including an analysis
of the limitations of ?nancial liability. The Commission
shall, where appropriate, carry out public consultation.
In the light of that report, the Commission shall, if it
considers it appropriate, submit recommendations to
the Member States.
[(JURI, 2005, p. 47)]
This amendment was notably different from that ini-
tially proposed by the ECG in that it did not contain any
requirement for Member States to limit auditors’ liability.
However, it did mean that the Commission was now stat-
utorily committed to conducting a study on the impact of
the Members States’ liability practices.
Importantly, the JURI Committee’s report also stated
that the ?nal text of the amendment was a result of ‘the
compromise as agreed during the informal trilogue’
[between the European Parliament, the Commission and
the Council of Ministers]. The ECG’s proposed amendment
had failed to achieve a position which could be agreed
upon and shared within the European ‘decision making tri-
angle’. Nevertheless, the fact that the ?nal version of the
amendment referred to the possibility of a recommenda-
tion by the Commission on the subject of liability was evi-
dence of some form of political compromise between
involved parties and an expectation of further policy
debate. Such expectations were duly heightened with the
appointment, in November 2004, of Charlie McCreevy as
the European Commissioner for Internal Market and Ser-
vices (replacing Frits Bolkestein). McCreevy’s personal pro-
fessional experience as a Chartered Accountant in Ireland
arguably contributed to him being more sympathetic to
the large accounting ?rms’ claim that the Member States’
existing liability regimes were unfair. McCreevy asserted,
fairly early on during his period of of?ce, that ‘‘(P)ersonally
I make no secret I have been in favour of having some cap
on auditor liability for as long as I’ve been a Chartered
Accountant’’ (McGinley, 2005).
The revised Eighth Company Law Directive on Statutory
Audits of Annual Accounts and Consolidated Accounts (2006/
43/EC) was of?cially issued in May 2006 (European
Commission, 2006). In response to article 30a of the Direc-
tive, which stated that the Commission should ‘‘present a
report on the impact of the current national liability’’, the
Commission duly appointed a UK consultancy ?rm London
Economics
10
to study the issue. Furthermore, as noted ear-
lier in the paper, the Commission’s standardized approach
to policy formulation has been to encourage various discus-
sion groups to develop a shared view on the policy issues at
hand, and also, to justify resulting policy outcomes
(Andersen & Burns, 1996; Andersen & Eliassen, 1996;
Greenwood, 2007; Nugent, 2001). One example of such
groupings was the European Auditor Liability Forum, set
up by the Commission in 2005 and which continued work-
ing until summer 2006. Involved in the European Auditor
Liability Forum were twenty audit market experts, repre-
senting regulatory agencies, professional accountancy
bodies (ICAEW and FEE), large accounting ?rms (as repre-
sented by the ECG’s Chairman), associations of large busi-
nesses from France and Italy, the insurance industry, the
banking sector, investment organizations, and academia.
In Hilgartner’s (1992) terms, meetings of the Forum
constituted instances of ‘heterogeneous engineering’
whereby participants, through claims of relevant expertise,
became directly involved in the identi?cation and justi?ca-
tion of risks associated with auditor liability. The London
Economics study played a vital role here in that it supplied
new, previously undisclosed data on the consequences of
litigation for the large accounting ?rms – data that was
capable of being used to justify more aggressively the risks
of unlimited liability. Much of the evidence presented by
London Economics was sourced from documentary/litera-
ture reviews as well as surveys of accounting ?rms, client
companies, institutional investors, and other stakeholders
from the EU Member States. The Forum was committed
to understanding ‘‘the background of litigation risks affect-
ing ?rms and networks as a whole’’ (European Forum on
Auditor Liability, 2005, p. 2). This involved the collection
of evidence of the economic impact of auditor liability
and gaining (unprecedented) access to the con?dential
data on the legal claims against accounting ?rms in the
EU and United States, including details of how these cases
had been resolved. The ECG played a key part in facilitating
access to this information. The ?ndings of the London Eco-
nomics study and the con?dential details of litigation
against auditors put the large accounting ?rms, and specif-
ically the ECG, in a powerful position for continuing to
raise the signi?cance of unlimited auditor liability as a risk
object that needed to be brought under control through a
form of regulatory action (Hilgartner, 1992). Strategically
designed to underscore certain types of harms and threats,
the data presented was to lay the ground for the large
accounting ?rms’ further offensive directed at the sceptics
of unlimited liability.
The project report by London Economics (2006) con-
cluded that the market for international audits was highly
concentrated and effectively controlled by the large
accounting ?rms. Such concentration was said to be linked
to a growing gap between the value of legal claims against
auditors and available insurance cover, with smaller
accounting ?rms unable to cover the remaining amount
claimed from their personal wealth. It was also claimed
that unlimited auditor liability combined with only limited
availability of liability insurance posed a serious risk to
auditors, as they were left unprotected against the ‘cata-
strophic’ consequences of growing litigation, including
the increasing likelihood of another large accounting
?rm failure (similar to that of Arthur Andersen), and
10
London Economics is a London-based consultancy ?rm established in
1986 by a British economist John Kay who at the time also held a Chair at
London Business School. Over the years, the ?rm’s clients have included
private and public sector organizations (such as the British government) as
well as independent regulators (e.g. Ofcom, – an independent competition
authority in the UK). London Economics has been involved in carrying out a
wide variety of projects for EU institutions (such as the Commission and the
Parliament) which, apart from its study on auditor liability, have included
topics such as human resource mobility, European e-communications and
European market studies.
A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72 65
endangering the effective functioning of the broader econ-
omy if ‘‘auditors were to decide that auditing is a too risky
activity and therefore shift to other business lines’’
(London Economics, 2006, p. 134)
In concluding, the London Economics report claimed
that limiting auditor liability would tackle the adverse
effects of auditors’ extensive litigation exposure by, inter
alia, reducing concentration in the audit market, helping
to ease staf?ng pressure on accounting ?rms, and ulti-
mately, preventing another major accounting ?rm failure
(London Economics, 2006, p. 177). That said, a ‘one-size-
?t-all’ approach (i.e. the imposition of a single liability
arrangement) was deemed unhelpful in terms of ade-
quately catering for the variety of legal environments and
accounting ?rm characteristics in the Member States (p.
188).
From competing conceptualizations of risk to the
making of a Recommendation
The publication of the London Economics report was
soon followed by the launch, in January 2007, of a public
consultation on the need for a European reform of auditor
liability, including introducing a form of limited liability
(Directorate General for Internal Market & Services,
2007a). The consultation allowed a wide range of transna-
tional interests concerned with the liability issue a further
opportunity to voice their opinions. Analysis of responses
to the consultation (85 in total) (Directorate General for
Internal Market & Services, 2007b) demonstrated, yet
again, signi?cant differences of opinion as to the best
way to approach the liability issue, with such differences
stemming from divergent conceptualizations of risk that
various transnational policy actors attributed to particular
auditor liability arrangements (Hilgartner, 1992). Indeed,
the range of reactions revealed just how the pursuit of con-
trol over the construction of the meaning of risk repre-
sented a continuing struggle with environmental
developments yielding differing opportunities for actors
to in?uence the direction of regulatory debate by emplac-
ing and displacing particular risk objects and rede?ning
linkages between them.
Strong reform proponents, such as the large accounting
?rms, attacked the claim that limited liability would lead
to inferior audit quality. They drew a connection between
the issue of liability limitation and the viability of the audit
market, arguing that public oversight of the audit profes-
sion was a potentially more discriminating tool for enhanc-
ing audit quality than unlimited liability. With respect to
the methods of limitation, the large accounting ?rms unan-
imously supported introducing a liability cap (Directorate
General for Internal Market, 2007b).
However, despite this apparent solidarity of opinion on
the need for auditor liability limitation and a cooperative
tone in previously provided agreed policy positions, differ-
ences did begin to appear in the views of the large account-
ing ?rms. For example, BDO and Grant Thornton,
alternatively described as the two leading ‘mid-tier’ ?rms,
disputed vigorously the position taken by the ‘largest’ (Big
Four) ?rms as to what size of liability cap was most
appropriate. Jeremy Newman, at that time the BDO manag-
ing partner in the UK, publicly argued in a journal inter-
view that the Big Four ?rms would be the main
bene?ciaries of a high liability cap and that the ‘mid-tier’
?rms would be ‘‘crushed by the Big [Four] ?rms’’ (Hawkes,
2008).
Further, the 2007 consultation revealed how opponents
of liability limitation, such as users of audit reports, had
started more aggressively to challenge the conceptualiza-
tions of risk (Hilgartner, 1992) attributed to unlimited
auditor liability constructed by the large accounting ?rms.
Such opposition was designed to undermine the chain of
causal linkages that the accounting ?rms had sought to
establish between unlimited liability regimes and what
the ?rms claimed were the adverse consequences of litiga-
tion such as another accounting ?rm failure. Instead, users
of audit reports rationalized audit failure as something that
was far more strongly related to the loss of reputation that
follows from major exposés of poor audit quality. Repre-
sentatives of the insurance and investment communities,
for example, stood in particularly strong opposition to
the prospect of liability limitation (Directorate General
for Internal Market, 2007b, p. 13). The essence of their con-
cerns was the possibility that a ?xed cap on auditor liabil-
ity would lead to situations where litigants could not be
fully compensated for their damages by auditors and
would, therefore, pursue damages’ claims against directors
and of?cers of the audited company, with a subsequent
pressure on insurance costs. They argued it was far more
important to place emphasis on the pursuit of better audit-
ing standards and corporate governance. The Comité
Européen des Assurances (CEA – the European Insurance
and Reinsurance Federation) stated in its comment letter
that ‘‘the risk of failure of a network, which could lead to
a reduction in the audit offer, is mainly linked to a loss
of reputation [emphasis added in the original document]
and simply limiting the liability for auditors in the EU does
not solve the problems of reputation’’ (CEA, 2007, p. 2).
Also, Peter Montagnon, Director of Investment Affairs at
the Association of British Insurers (ABI), asserted in an arti-
cle in the Financial Times (6 June, 2008) that, while liability
limitation would clearly offer auditors greater protection
against litigation, the bene?ts of this to investors were
somewhat less evident. In its formal response to the
2007 consultation, the ABI stressed that it had ‘‘worked
in conjunction with the CEA to deliver the insurance indus-
try’s key message that a cap will not change the underlying
problem that insurers have no appetite to insure the liabil-
ity of the Big Four auditors, following heavy losses in the
1990s’’.
11
Banking sector regulators highlighted similar concerns
with regards to the validity of assumptions made in the
London Economics report. One of their key worries was
the potential impact of changes in auditor liability arrange-
ments on the roles that external auditors play with regards
to banking regulation and supervision in some jurisdic-
tions, such as with respect to collecting information on
regulated entities and validating their assessments of key
11
Seehttp://old.abi.org.uk/Newsletter/Attachments/19.pdf.
66 A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72
measurements under the requirements issued by the Basel
Committee on Banking Supervision (see Hüpkes (2006) for
more discussion). The then Committee of European Bank-
ing Supervisors (since 2011, the European Banking Author-
ity), for example, questioned the argument that ‘‘capping
auditor liability across the EU will materially lessen the
likelihood of the exit of a Big Four audit ?rm from the audit
market or increase the choice of audit ?rm as no audit ?rm
has so far failed within the EU due to a catastrophic liabil-
ity claim against it’’ (Committee of European Banking
Supervisors, 2007, p. 2).
The above criticisms and other ‘inconvenient’ argu-
ments resulting from the consultation process seemed to
be largely ignored by the Commission’s of?cials, and
instead the ?ndings of the London Economics report (and
the public comments made by proponents of liability lim-
itation during the consultation) were used to justify the
need for liability reform. While some responses had
challenged the report’s arguments, it was still held out as
demonstrating the post-Enron ‘reality’ of the large ?rms’
audit liability exposures. Arguably, of crucial importance
here was the top-level institutional support that the issue
of liability limitation had secured at the Commission. Com-
missioner McCreevy had already publicly con?rmed his
strong preference for limited liability reform well before
the London Economics report was issued and so was
always likely to be supportive of its ?ndings. However,
he used it to revive the causal linkages between the issue
of auditor liability limitation and the concentrated nature
of the audit market that, as was shown earlier in the paper,
had been actively discussed within EU regulatory circles
over a decade earlier (European Commission, 1994). In
responding to the results of the London Economics study
in an address at a FEE Conference in October 2006, McC-
reevy emphasized that ‘‘[the results] underline a concern
I have had for some time: there is an increasing trend for
litigation against auditors, while at the same time interna-
tional audit networks are faced with a lack of available
commercial insurance’’ and that there is a risk that one
of the large accounting ?rms ‘‘might be faced with a claim
that would threaten its existence [. . .] [in which case] cap-
ital markets at large could face very serious consequences’’
(cited in Lambe, 2007).
Such argumentation attempted to de?ne auditor liabil-
ity not just as a risk that mainly threatens the survival of
accounting ?rms but as something arguably more hazard-
ous and signi?cant; something that can harm the economy
as a whole and the functioning of the European single
market. According to Hilgartner (1992), such attempts at
recon?guring the existing causal linkages between risk
and harm are designed to produce a tangible practical
impact, for ‘‘[w]hen new de?nitions of risk objects get
emplaced within the conceptual networks that people
use to think about a [. . .] system, they act on that system’’
[original emphasis added] (p. 50). Effectively, by challeng-
ing or broadening established linkages between risk and
harm, McCreevy and his supporters attempted to trans-
form unlimited auditor liability from ‘a problem of one
profession’ into a systemic risk and a threat to the system
of European values grounded in the ideals of free, fair and
ef?cient economy without borders.
McCreevy’s arguments also drew support from the fact
that a high level of concentration in the audit market had
gained global signi?cance as a policy issue. In September
2006, for example, the then Financial Stability Forum
(now Board) held a meeting in Paris where its members
‘‘expressed concern’’ about the high level of concentration
of audit services for large companies (Financial Stability
Forum, 2006, p. 2).
12
Furthermore, auditor liability and
audit market concentration were among the topics dis-
cussed at a roundtable organized by IOSCO in 2007. The
roundtable (for an of?cial transcript, see IOSCO, 2007)
yielded another opportunity for key participants in the
transnational policy debate on the liability issue to air their
respective views and concerns, although the outcome of the
Roundtable was a press release that avoided making any
strong policy statements or commitments.
13
In McCreevy’s subsequent address to the European Par-
liament’s Committee on Legal Affairs, he positioned audit
concentration and audit liability as key elements in a so-
called ‘audit package’ of policy measures for implementing
the revised Eighth Directive, and also the ?rst priority for
action (European Parliament, 2007). The issue of liability
reform was made less controversial by not discussing lia-
bility limitation in isolation or representing it as a need
in itself, but portraying it as a development that had clear
resulting bene?ts for the audit market and the quality of
auditing services:
I believe that we should make every endeavour to
encourage new entrants into the market for large audits
and to create the conditions for them to invest in build-
ing stronger international networks.
But how can we convince them to make the signi?cant
?nancial commitments needed to expand into the mar-
ket for larger audits, if liability risks are high and insur-
ance cover is not available? We cannot reasonably
promote the objective of greater choice without ?rst
addressing the liability risks facing the audit profession.
[(European Parliament, 2007, pp. 2-3)]
However, McCreevy’s views and his overall package of
reform both still generated challenge among interested
stakeholders and were seen by some as misrepresenting
the way in which discussions on auditor liability had pro-
ceeded. For instance, the International Corporate Gover-
nance Network (ICGN) issued a public letter heavily
criticizing the stance taken by McCreevy and the assump-
tions being made as to the consequent market effects of
auditor liability limitation – stating that limiting auditor
liability was not ‘‘an effective or appropriate way to
12
Also, the Basel Committee on Banking Supervision (2008, p. 9)
subsequently expressed its interest in monitoring developments in the
area of auditor liability in terms of the potential effects of any future policy
changes on audit quality.
13
For instance, with respect to liability, the press release noted: ‘‘The
second panel explored the implications of auditor liability and possibilities
for reform. The panelists focused in part on introducing liability caps for
auditors and whether adherence to transparency and corporate governance
principles by audit ?rms should be a prerequisite to liability reform.
Panelists also discussed the unavailability of insurance for catastrophic
claims and the implications for audit ?rm sustainability’’. See http://
www.iosco.org/news/pdf/IOSCONEWS105.pdf.
A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72 67
increase high-quality audit ?rm choice’’ and that instead
such an action ‘would reduce audit ?rm accountability,
provide a signi?cant market incentive to take audit short-
cuts, and reduce overall audit quality to the detriment of
investors’’ (ICGN, 2007). Certain regulatory groups were
also starting to advocate that the policy reform imperative
needed to shift from a direct emphasis on the need for lia-
bility reform, to a broader prioritization of audit quality
and the multifaceted ways (including liability limitation)
by which audit quality could be improved. For example,
in the UK, a report by the Market Participants Group
(2007), advising the Financial Reporting Council (the coun-
try’s regulator in the area of accounting and auditing)
downplayed auditor liability as a threat to competition
and the need for liability reform, noting that ‘‘n develop-
ing and implementing policy on auditor liability arrange-
ments, regulators and legislators should seek to promote
audit choice, subject to the overriding need to protect audit
quality’’ (p. 9).
McCreevy’s intent was also questioned at the level of
individual Member States, with the continuing spirit of
opposition re?ecting what Halliday and Carruthers
(2009) described as the utilization of the weapons of the
weak; namely, the tactics of reasoned resistance that sup-
posedly ‘weak’ national policymakers use to ‘foil’ the poli-
cies produced by supposedly more powerful transnational
bodies, such as the EU. For example, in highlighting
’’cultural incompatibilities’’ (Halliday & Carruthers, 2009,
p. 344), the French government stressed that the Commis-
sion’s proposals for an EU-wide action to limit auditor lia-
bility contradicted their view of auditing as an inherently
socially oriented function, particularly in the wake of the
corporate scandals of the early 2000s when an auditor
was, ‘‘more than ever, the guarantor of the credibility of
corporate reporting’’ (Des Autorités Françaises, 2007, p. 1
– authors’ translation). They went on to argue that such a
limitation would violate principles of social equality, a
key constitutional right in France. They questioned ?nd-
ings of the London Economics report, arguing that the risk
of disappearance of another large accounting ?rm network
as a result of litigation was not supported by any convinc-
ing evidence, hinting that most legal cases were routinely
resolved in (signi?cantly smaller than the original claims)
out-of-court settlements. They also treated with scepti-
cism the argument that limited liability could tackle the
problem of audit market concentration, stating that caps
on liability would bene?t mainly the larger ?rms, hence
pushing the smaller auditors even further away from
auditing large clients.
The French government’s stance on the auditor liability
issue was shared by other key stakeholder groups in the
country. Speci?cally, while the French audit profession
was in favour of liability limitation (arguing, in the words
of Valerie Macaud, head of audit at Grant Thornton France,
that the London Economics report showed that ‘‘there [. . .]
[was] no evidence that unlimited liability promotes audit
quality’’ – see The Accountant, 28.02.2007), other stake-
holders, such as French banks and the Mouvement des
Entreprises de France, an industry group that represents
French companies, were strongly opposed to auditor liabil-
ity reform (see The The Accountant, 28.02.2007;
Directorate General for Internal Market, 2007b). In
Hilgartner’s (1992) terms of analysis, such competing
arguments portray France as an environment where the
risk associated with auditor liability (and any related
reform) is conceptualized in terms of the social harms of
audit failure and the consequent need to protect ‘injured’
parties.
14
In June 2008, the Commission issued its formal Recom-
mendation, entitled ‘‘The Recommendation Concerning the
Limitation of the Civil Liability of Statutory Auditors and Audit
Firms’’ (2008/473/EC). It duly classi?ed unlimited liability
as a serious impediment to audit market competition and
the smooth functioning of capital markets, noting that
‘‘increasing volatility in market capitalisation of companies
[. . .] [had] led to much higher liability risks, whilst access
to insurance coverage against the risks associated with
[. . .] audits [. . .] [had] become increasingly limited’’
(European Commission, 2008a, p. 1). The Recommenda-
tion, however, did not impose any binding restrictions
upon the Member States to change their current position
but only suggested that auditor liability ‘‘be limited except
in cases of intentional breach of duties by the statutory
auditor or the audit ?rm’’ (European Commission, 2008a,
p. 1) by one of three methods: a cap on liability, propor-
tionate liability, or limitation by contract (between the cli-
ent and an auditor). Hence, the Recommendation did little
to address the problem of diversity of auditor liability
regimes across Europe, the aim that had been a primary
motive for its initial interest in the auditor liability issue.
It has been said that ‘‘the most forgiving rules are often
on the most controversial topics’’ (Halliday & Carruthers,
2009, p. 411) and the dif?culties of ?nding a shared policy
position on a pan-European auditor liability arrangement
ultimately led the Commission to produce a non-binding
Recommendation offering multiple implementation
options rather than any binding Directive.
15
Conclusions
This paper’s analysis of the determination of EU policy
on the subject of auditor liability limitation has demon-
strated how the large accounting ?rms’ efforts to mobilize
pertinent EU governance institutions in their pursuit of
change in Member States’ auditor liability arrangements
failed to produce changes in governance outcomes that
the ?rms had strived for. Instead of a binding policy that
14
Such a perception of risk did not only underlie the French authorities’
speci?c position on the Commission’s proposals but, more broadly, also
re?ected the general nature of the country’s legal treatment of auditor
liability as a policy issue. France did introduce the principle of proportion-
ate liability in the 1966 Companies Act (‘Loi sur les Societes Commercials
no. 66-537’). However, while stating that auditors can be held liable only
for their own fault and not that of management, the Act also explicitly
provided for the auditor’s duty of care to third parties. The fact that such
liability arrangements were de?ned in statute and not, for example, in
contract law may be taken as testimony to the public policy orientation of
auditing in France (Thieffry & Associates, 2001).
15
In particular, the strong opposition from countries, such as France,
meant that a ‘one-size-?ts-all’ approach to the auditor liability dilemma
would have been unlikely to receive the required approval (by individual
Member States voting) from the Council of Ministers, the EU’s principal
legislator.
68 A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72
would mandate a form of auditor liability limitation across
Europe, the ?rms’ lobbying efforts only managed to secure
a Recommendation that imposed no exacting obligations
for action on the part of EU Member States. In viewing
the pursuit of EU-wide auditor liability reform through
Hilgartner’s (1992) analytical prism of a ‘risk object’, the
paper has demonstrated how different interest representa-
tions constructed and levied competing views regarding
proposed regulatory solutions, which ultimately did much
to frustrate the accounting ?rms’ strategic intentions
regarding EU-wide liability limitation. In terms of any pos-
sible resolution of the debate, the European Commission’s
proposals to limit auditor liability proved capable of being
simultaneously linked to different types of risks
(Hilgartner, 1992). Accordingly, while the large accounting
?rms linked unlimited auditor liability with increased liti-
gation against auditors, prospective major accounting ?rm
failures and increased audit market concentration, oppo-
nents of auditor liability limitation were, in contrast,
stressing the adverse effects of limited auditor liability on
auditor independence and the quality of audits. Likewise,
we have also seen how particular harms, such as the
demise of a major accounting ?rm, were capable of being
used by different interest groups to justify diametrically
opposite policy positions – for example, with large
accounting ?rms stressing the dangers of excessive liability
exposure and users of audit reports reminding us of the
importance of addressing the diminishing public trust in
the quality of auditors’ work. Such risk construction pro-
cesses (and related arrays of rhetorical associations
designed to emplace/displace particular risks in the
conceptual framing of European policy making on auditor
liability limitation) prevented the establishment of any
strong consensus as to an appropriate policy solution. In
turn, these processes provide a vivid endorsement of
Power’s (1998) claim that ‘‘the question of auditor liability
would never be decisively solved, that pressures always
exist to push the auditor in new directions, that auditors
are constantly tempted to create expectations of what they
can achieve, that new legal provisions are almost immedi-
ately out of date and some subject to pressures for reform
and that classes of potential litigants can be created over-
night just as others can disappear’’ (p. 79).
It is also important to emphasize that such risk con-
struction processes remain subject to temporal in?uences,
wherein signi?cant environmental developments and
shifts in actor constellations can serve to create, reinforce
or downplay the risks associated with particular policy
agendas. Notably, in this regard, the aftermath of the
2007/08 ?nancial crisis and the change in the top echelons
of the EU’s political establishment (with the appointment
of Commissioner Barnier in place of his predecessor
McCreevy, a vocal advocate of audit liability limitation)
saw the pursuit of auditor liability limitation lose much
regulatory momentum. The Commission’s Green Paper on
audit policy (European Commission, 2010) made no refer-
ence to the limitation of auditor liability and subsequent
reform proposals (European Commission, 2011) even
referred to the need to ‘‘increase the con?dence in and
the liability of the statutory auditors’’ (European
Commission, 2011, p. 17).
Beyond the speci?cs of auditor liability limitation, the
paper’s analysis allows for the drawing of broader conclu-
sions regarding the dynamics of modern regulatory gover-
nance systems. First, we have shown the involvement of
private professional interests, particularly large accounting
?rms, in EU governance processes to be both substantial
and active on a number of governance layers (including
the European Commission, Parliament, and Council) and
mechanisms (e.g. public consultation, committee member-
ship, meetings with the representatives of individual
Member States, direct engagement with the preparation
of of?cially commissioned reports, direct lobbying and
behind-the-scenes interactions). However, the paper
emphasizes the potential dangers of treating such transna-
tional policy engagement as something that automatically
translates into an ability to dominate policy prescription
and outcomes. Recent years have certainly witnessed the
increasing prominence of studies of international account-
ing ?rms and accompanying claims as to their substantive
status and in?uence in transnational governance (Barrett
et al., 2005; Malsch & Gendron, 2011; Suddaby et al.,
2007). Our ?ndings, however, serve to question the ?rms’
scale of in?uence or at least impact on the determination
of EU policy with respect to auditor liability limitation.
With Fogarty and Rigsby (2010) generating similar results
when highlighting the incapacity of the international
accounting ?rms to secure regulatory support for desired
innovations in audit practice, it is important not to assume
that the interests of the large accounting ?rms are an invi-
olable force in the evolving transnational governance ?eld.
Moreover, such ?ndings also highlight the importance of
extending perspectives on the strategic policy endeavours
of the accounting profession and its large ?rms so as to
more fully capture how such endeavours are conditioned
‘‘by multiple actors, agendas, and strategies of in?uence’’
where ?rms are but one type of force with signi?cant
capacity to shift regulatory imperatives (Samsonova-
Taddei & Humphrey, 2014, p. 907).
Secondly, while con?rming prior accounts of the rise of
transnational regulation and the market demand for global
policy solutions (Arnold, 2005, 2012; Büthe & Mattli, 2011;
Cooper & Robson, 2006; Malsch & Gendron, 2011; Suddaby
et al., 2007), the paper provides a timely reminder of the
importance of not treating the transnational regulatory
arena as it if it were a ‘‘single world stage’’ (Halliday &
Carruthers, 2009, p. 6). Agendas of local implementation,
and the possibilities as to what can and cannot be imple-
mented at the national level, shape the core of what legis-
lative and regulatory proposals the EU is willing to adopt in
the ?rst place. In this regard, our analysis reinforces prior
accounts of the EU policy arena arguing that ‘‘[d]espite
the independent in?uence of both EU institutions and
sub- and trans-national actors, as well as the extensive
transfer of competencies to supranational actors, sover-
eignty to date has not withered away to make way for a
European sovereign state, nor for the disappearance of sov-
ereign Member States’’ (Aalberts, 2004, p. 41). The substan-
tial authority of the national political arenas is not unique
to EU policy making but, increasingly, is part of a general
trend towards the ‘repoliticalization’ (Bengtsson, 2011) of
accounting regulation and the rebalancing of regulatory
A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72 69
power in the wake of the global ?nancial crisis where polit-
ical bureaucrats look to be re-gaining considerable in?u-
ence at the expense of other, such as private professional,
actors.
Finally, such observations and inferences about the nat-
ure of European (transnational) audit policy arena provide
an inviting basis from which to re?ne extant scholarly
approaches towards the study of accounting/auditing reg-
ulation. Speci?cally, they highlight the importance of
research approaches that are capable of demonstrating
and revealing empirically the complexity and multi-direc-
tional nature of the interactions between transnational
policy stakeholders that constitute transnational gover-
nance processes in action. Methodologically, it places an
emphasis on taking longer-term, longitudinal perspectives
when studying and evaluating the development and
associated consequences of (transnational) regulatory gov-
ernance reforms. Understandings of the origin, meaning
and consequences of regulatory initiatives and events can
be enhanced by giving greater recognition to the cyclical
nature of (accounting/auditing) regulation and the ways
by which past policy outcomes feed into contemporary
reform agendas (Humphrey, Moizer, & Turley, 1992). Fur-
thermore, with a growing trend towards academic analysis
of regulatory impact (Samsonova & Turley, 2012), it is
important that research is not con?ned to testing the
empirical ‘validity’ of new regulations and standards but
is fully capable and committed to studying the social and
political dimensions of regulatory reform (Humphrey,
2008) – exploring the processes by which regulation is pro-
duced and the ‘individual voices’ and contextually rooted
sentiments that shape regulatory agendas. Cooper and
Robson (2006), in this regard, pointed to the value of
studying accounting regulation ‘in a comparative manner’,
urging us to consider ‘how the speci?c location might
affect regulatory outcomes’ (p. 428–29), including
enhanced scrutiny of the in?uence of local political and
social contexts and cross-national differences on global
regulatory reform (also see Canning & O’Dwyer, 2013;
Caramanis, Dedoulis, & Levebtis, 2010; Jeppesen & Loft,
2011; Malsch & Gendron, 2011). In this vein, it is important
to study the development of international norm systems
not as linear trajectories but rather as recursive processes
wherein local policy-making experiences are visibly recog-
nized as shaping the outputs of transnational policy mak-
ing (Halliday & Carruthers, 2009, p. 409). We need to
appreciate such outputs as products of contingent negotia-
tion between national policy makers and institutions of
transnational governance. In turn, this may well allow us
to learn more of the relative regard held for regulated pro-
fession services, such as auditing, and the presumptions
that govern assessments of auditor performance and
expectations held for the function itself.
Acknowledgements
We would like to thank Stella Kokkali whose student
dissertation project became a starting point for this paper.
We also gratefully acknowledge the helpful comments on
the earlier drafts of this paper from two anonymous
reviewers, Mary Canning, Marie-Laure Djelic, Paul André,
Charles Cho, Jeremy Jennings, Anne Cazavan-Jeny, Andrei
Filip, Karel Van Hulle, Robert Knechel, David Gwilliam,
Cedric Lesage, Anne Loft, Martin Manuzi, Stephen Nye,
Brendan O’Dwyer, Reiner Quick, Chrystelle Richard, Steven
Walker and Peter Wyman, together with participants of
the 5th European Auditing Research Network Symposium,
the 6th Asia Paci?c Interdisciplinary Research in Account-
ing (APIRA) Conference, and research seminars at ESSEC
(Paris) and Exeter (UK) Business Schools.
References
Aalberts, T. (2004). The future of sovereignty in multilevel governance
Europe. Journal of Common Market Studies, 42(1), 23–46.
Accountancy Age (1996). Welcome for paper with no answers, 22 August
1996.
Accountant (2007). Country survey – France: French institutes build
relationships; 28.02.2007.
Andersen, S. S., & Burns, T. (1996). The European Union and the Erosion of
Parliamentary Democracy: A study of post-parliamentary
governance. In S. S. Andersen & K. A. Eliassen (Eds.), The European
Union: How Democratic is it? (pp 217–226). London: Sage Publications.
Andersen, S. S., & Eliassen, K. A. (1996). EU-lobbying: Between
representativity and effectiveness. In S. S. Andersen & K. A. Eliassen
(Eds.), The European Union: How Democratic is it? (pp 41–56). London:
Sage Publications.
Arnold, P. (2005). Disciplining domestic regulation: The World Trade
Organization and the market for professional services. Accounting,
Organizations and Society, 30, 299–330.
Arnold, P. (2009). Global ?nancial crisis: The challenge to accounting
research. Accounting, Organizations and Society, 34(6–7), 803–809.
Arnold, P. (2012). The political economy of ?nancial harmonization: The
East Asian ?nancial crisis and the rise of international accounting
standards. Accounting, Organizations and Society, 37, 361–381.
Arnold, P. J., & Sikka, P. (2001). Globalization and the state-profession
relationship: The case of the Bank of Credit and Commerce
International. Accounting, Organizations and Society, 26, 475–499.
Arthur Andersen & Co. Coopers & Lybrand Deloitte & Touche Ernst &
Young & KPMG Peat Marwick & Price Waterhouse (1992). The liability
crisis in the United States: Impact on the accounting profession.
Journal of Accountancy, 174(5), 19–23.
Barrett, M., Cooper, D. J., & Jamal, K. (2005). Globalization and the
coordinating of work in multinational audits. Accounting,
Organizations and Society, 3(1), 1–24.
Basel Committee on Banking Supervision (2008). External audit quality
and banking supervision. December 2008. Basel Committee on Banking
Supervision: Basel, Switzerland.
Bengtsson, E. (2011). Repoliticalization of accounting standard setting –
The IASB, the EU and the global ?nancial crisis. Critical Perspectives on
Accounting, 22, 567–580.
Bolkestein, F. (2003). Auditor liability: An EU perspective. Address at a
conference by Beachcroft Wansbroughs at the London Underwriting
Centre, London, 24th Match, 2003.
Botzem, S. (2012). The politics of accounting regulation: Organizing
transnational standard setting in ?nancial reporting. Cheltenham:
Edward Elgar Publishing Limited.
Buijink, W., Maijoor, St., Meuwissen, R., & Van Witteloostuijn, A., (1996).
The Role, Position and Liability of the Statutory Auditor within the
European Union. A Report by the Maastricht Accounting, Auditing &
Information Management Research Center (MARC). Luxembourg:
Of?ce for Of?cial Publications of the European Communities.
.
Büthe, T., & Mattli, W. (2011). The new global rulers: The privatization of
regulation in the world economy. New Jersey: Princeton University
Press.
Canning, M., & O’Dwyer, B. (2013). The dynamics of a regulatory space
realignment: Strategic responses in a local context. Accounting,
Organizations and Society, 38(3), 169–194.
Caramanis, C., Dedoulis, E., & Levebtis, S. (2010). The establishment of EU-
inspired ‘independent’ oversight boards: Local constraints and the
elusive feat of Europeanization in Greece. Paper presented at the
European Accounting Association Annual Congress, Istanbul, April.
CEA (2007). CEA response to the EC consultation on auditors’ liability and its
impact on the European capital markets. 15 March 2007. CEA: Brussels.
70 A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72
.
Chapman, P. (2004a). Audit giants press MEPs for ?nancial liability cap.
European Voice. 23.09.2004. .
Chapman, P. (2004b). MEPs join auditors’ campaign for ?nancial liability
lifeline. European Voice. 25.11.2004. .
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.
Coen, D. (Ed.). (2007). EU lobbying: Empirical and theoretical studies.
London: Routledge.
Coen, D., & Richardson, J. (Eds.). (2009). Lobbying the European Union:
Institutions, actors and issues. Oxford: Oxford University Press.
Committee of European Banking Supervisors (2007). Commission Staff
Working Paper: Consultation on Auditors’ Liability and its Impact on the
European Capital Markets. 15th March 2007. London: CEBS.
Cooper, D., & Robson, K. (2006). Accounting, professions and regulation:
Locating the sites of professionalisation. Accounting, Organizations and
Society, 31(6), 415–444.
Des Autorités Françaises (2007). Réponse des Autorités Françaises à la
consultation de la Commission européenne sur la responsabilité civile
des contrôleurs légaux des comptes et ses impacts sur les marchés de
capitaux européens. [Response of the French Authorities to the
European Commission’s Consultation on Civil Liability of Statutory
Auditors and its Impact on the European Capital Market].
Dewing, I. P., & Russell, P. (2002). Regulation of statutory audit in the
European Union: New developments. Journal of Financial Regulation
and Compliance, 10(1), 68–78.
Dewing, I. P., & Russell, P. (2008). Financial integration in the EU: The ?rst
phase of EU endorsement of international accounting standards.
Journal of Common Market Studies, 46(2), 243–264.
Directorate General for Internal Market and Services (2006). The legal
systems of civil liability of statutory auditors in the European Union.
Update of the study carried out on behalf of the Commission by Thieffry &
Associates in 2001. Brussels: European Commission.
Directorate General for Internal Market and Services (2007a). Commission
Staff Working Paper: Consultation on Auditors’ Liability and its Impact on
the European Capital Markets. Brussels: European Commission.
Directorate General for Internal Market and Services (2007b). Consultation
on Auditors’ Liability: Summary Report. Brussels: European
Commission.
Djelic, M.-L., & Sahlin-Andersson, K. (2006). Introduction: A world of
governance: The rise of transnational regulation. In M.-L. Djelic & K.
Sahlin-Andersson (Eds.), Transnational governance: Institutional
dynamics of regulation (pp. 1–30). Cambridge: Cambridge University
Press.
Djelic, M.-L., & Sahlin, K. (2010). Governance and its transnational
dynamics: Towards a reordering of our world? In C. S. Chapman, D.
J. Cooper, & P. Miller (Eds.), Accounting, organizations, and institutions:
Essays in honour of Anthony Hopwood (pp. 175–204). Oxford: Oxford
University Press.
Eberlein, B., & Grande, E. (2005). Beyond delegation: Translational
regulatory regimes and the EU regulatory state. Journal of European
Public Policy, 12(1), 89–112.
European Commission (1994). Making Europe More Competitive. The Role
of the Accountancy Profession. Speech by Mr John F. Mogg at FEE General
Assembly. 14 December 1994. Brussels: European Commission.
European Commission (1996a). The Role, the Position and the Liability of the
Statutory Auditor within the European Union. Green Paper. Brussels:
European Commission.
European Commission (1996b). Act on the Conference on the Position and
the Liability of the Statutory Auditor within the European Union.
Brussels: European Commission.
European Commission (1998). Communication from the Commission on the
Statutory Audit in the European Union: The Way Forward. Brussels:
European Commission.
European Commission (2001). International Accounting Standards:
Mandatory for listed companies by 2005. Single Market News. March.
Brussels: European Commission. .
European Commission (2002a). A First EU response to Enron Related Policy
Issues. Brussels: European Commission.
European Commission (2002b). Record of the Meeting held on 6th and 7th
June 2002 in Helsinki. 22 October 2002. Brussels: European
Commission.
European Commission (2003). Reinforcing the Statutory Audit in the EU.
Brussels: European Commission.
European Commission (2004). International accounting norms: Background
and recent developments in EU. Brussels: European Commission.
European Commission (2006). Statutory Audits of Annual Accounts and
Consolidated Accounts. Brussels: European Commission. http://
europa.eu/scadplus/leg/en/lvb/l26001.htm.
European Commission (2008a). 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.
European Commission (2008b). Impact Assessment, Accompanying
Document to the Commission Recommendation Concerning the
Limitation of the Civil Liability of Statutory Auditors and Audit Firms.
Brussels: European Commission.
European Commission (2010). Audit policy: Lessons from the crisis. Green
Paper. Brussels: European Commission.
European Commission (2011). Proposal for a regulation of the European
parliament and of the Council on speci?c requirements regarding
statutory audit of public-interest entities. Brussels: European
Commission.
European Contact Group (1996). Respondonding to Market Expectations. An
Action Plan to Reduce the Expectation Gap. July 1996. Brussels:
European Contact Group.
European Forum on Auditor Liability (2005). Summary of the Meeting of 13
December 2005. MARKT/F4/AFM D(2005). Brussels: European
Commission.
European Parliament (2005). On Directive of the European Parliament and
the Council of Statutory Audit of Annual Accounts and Consolidated
Accounts and Amending Council Directives 78/660/EEC and 83/349/EEC.
Proposal for a Directive by Bert Doorn. 11 February 2005. Brussels:
European Parliament.
European Parliament (2007). Mr. McCreevy Presents Statutory Audit
Package. JURI Committee, 19 December 2007. Brussels: European
Parliament.
Faulconbridge, J. R., & Muzio, D. (2011). The rescaling of the professions:
Towards a transnational sociology of the professions. International
Sociology, 27(1), 109–125.
FEE (1992). The Image and Future of the Auditing Profession in Europe.
Brussels: Fédération des Experts-Comptables Européens (FEE).
FEE (1996). The Role Position and Liability of the Statutory Auditor in the
European Union. Brussels: Fédération des Experts-Comptables
Européens (FEE).
FEE (2004). FEE Position on the Proposed Audit Directive. 17 November
2004. Fédération des Experts-Comptables Européens (FEE): Brussels.
Financial Stability Forum (2006). Financial Stability Forum meets in Paris.
Press release. 6 September 2006. Financial Stability Forum: Paris.
Fogarty, T., & Rigsby, J. (2010). A re?ective analysis of the ‘‘new audit’’ and
the public interest: The revolutionary innovation that never came.
Journal of Accounting & Organizational Change, 6(3), 300–329.
Gietzmann, M. B., & Quick, R. (1998). Capping auditor liability: The
German experience. Accounting, Organizations and Society, 23(1),
81–103.
Greenwood, J. (2007). Interest Representation in the European Union (2nd
ed.). New York: Palgrave Macmillan.
Gwilliam, D. R. (2004). Auditor liability: Law and myth. Professional
Negligence, 20(3), 172–181.
Haller, A. (2002). Financial accounting developments in the European
Union: Past events and future prospects. European Accounting Review,
11(1), 153–190. 1468–4497.
Halliday, T., & Carruthers, B. (2007). The Recursivity of Law: Global Norm-
making and National Lawmaking in the Globalization of Corporate
Insolvency Regimes. American Journal of Sociology, 112(4), 1135–1202.
Halliday, T., & Carruthers, B. (2009). Bankrupt: Global lawmaking and
systemic ?nancial crisis. Stanford: Stanford University Press.
Hilgartner, S. (1992). The social construction of risk objects. In J. F. Short &
L. Clarke (Eds.), Organizations, uncertainties and risk. Boulder, San
Francisco, Oxford: Westview Press.
Hofmann, J. (2010). Before the sky falls down: A ‘constitutional dialogue’
over the depletion of internet addresses. In B. M. Hutter (Ed.),
Anticipating risks and organising risk regulation. Cambridge, UK:
Cambridge University Press.
Humphrey, C. (2008). Auditing research: A review across the disciplinary
divide. Accounting, Auditing and Accountability Journal, 21(2),
170–203.
A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72 71
Humphrey, C., & Loft, A. (2011). Moving beyond nuts and bolts: The
complexities of governing a global profession through international
standards. In S. Ponte, P. Gibbon, & J. Vestergaard (Eds.), Governing
through standards: Origins, drivers, limitations (pp. 102–129).
Basingstoke: Palgrave MacMillian.
Humphrey, C., Loft, A., & Woods, M. (2009). The global audit profession
and the international ?nancial architecture: Understanding
regulatory relationships at a time of ?nancial crisis. Accounting,
Organizations and Society, 34(6–7), 810–825.
Humphrey, C., Moizer, P., & Turley, S. (1992). The audit expectations gap –
plus Ça Change, Plus C’est La Même Chose? Critical Perspectives on
Accounting, 3(2), 137–161.
Hutter, B. (2010). Anticipating risk and organizing risk regulation: Current
dilemmas. In B. M. Hutter (Ed.), Anticipating risks and organising risk
regulation. Cambridge, UK: Cambridge University Press.
Hüpkes, E. (2006). The external auditor and the bank supervision:
‘Sherlock Holmes and Doctor Watson?’. Journal of Banking
Regulation, 7, 145–159.
ICGN (2007). Letter to Charlie McCreevy, European Commissioner Internal
Market and Services re the statutory audit measures proposed in a speech
on December 19, 2007. .
IFAC (1995). Auditor’s legal liability in the global marketplace: A case for
limitation. New York: International Federation of Accountants.
Jennings, J. (2010). Life for auditors in the Balkan Area. Presentation at the
World Bank meeting, Brussels, October.
Jeppesen, K. K., & Loft, A. (2011). Regulating audit in Europe: The case of
the implementation of the EU Eighth Directive in Denmark 1984–
2006. European Accounting Review, 20(2), 321–354.
JURI (2005). Report on the Proposal for a Directive of the European
Parliament and of the Council on Statutory Audit of Annual Accounts
and Consolidated Accounts and Amending Council Directives 78/660/EEC
and 83/349/EEC. 1st July 2005. JURI: Brussels.
Kelly, J. (1996). The Big Eight’s vision for the future of auditing in the
European single market. Financial Times, 28 November 1996.
Lahusen, C. (2002). Commercial consultancies in the European Union: The
shape and structure of professional interest intermediation. Journal of
European Public Policy, 9(5), 695–714.
Lambe, A. (2007). Auditor liability – Minister’s referral to CLRG is timely.
Accountancy Ireland, 39(1), 34–35.
Lochner, P. R. J. (1993). Accountants’ legal liability: A crisis that must be
addressed. Accounting Horizons, 7, 92–96.
Loft, A., Humphrey, C., & Turley, S. (2006). In pursuit of global regulation:
Changing governance structures at the International Federation of
Accountants (IFAC). Accounting, Auditing and Accountability Journal,
19(3), 428–451.
London Economics (2006). Study on the economic impact of auditors’
liability regimes. Brussels: European Commission.
Lupton, D. (1999). Risk. London and New York: Routledge.
Maijoor, S., Buijink, W., Meuwissen, R., & Witteloostuijn, A. V. (1998).
Towards the establishment of an internal market for audit services
within the European Union. European Accounting Review, 7(4),
655–673.
Malsch, B., & Gendron, Y. (2011). Reining in auditors: On the dynamics of
power surrounding an ‘‘innovation’’ in the regulatory space.
Accounting, Organizations and Society, 36, 456–476.
Manardo, J. (1996). Challenges for large audit Wrms in the European single
market. Speech given to the Green Paper Conference on the Statutory
Auditor, December.
Market Participants Group (2007). Choice in the UK audit market. Final
report of the Market Participants Group. London: Financial Reporting
Council, UK.
McGinley, C. (2005). On Auditor Liability and other Issues for the Profession.
Accountancy Ireland. December. .
Napier, C. (1998). Intersections of law and accountancy: Unlimited
auditor liability in the United Kingdom. Accounting, Organizations
and Society, 23(1), 105–128.
Neu, D., Ocampo Gomez, E., Graham, C., & Heincke, M. (2006). ‘Informing’
technologies and the World Bank. Accounting, Organizations and
Society, 31(7), 635–662.
Nölke, A. (2003). The relevance of transnational policy networks: Some
examples from the European Commission and the Bretton Woods
institutions. Journal of International Relations and Development, 6(3),
276–298.
Nugent, N. (2001). The European Commission. New York: Palgrave.
Ojo, M. (2009). Limiting audit ?rms’ liability: A step in the right direction?
(Proposals for a new audit liability regime in Europe revisited). Center for
European Law and Politics, University of Bremen, MPRA Paper No.
14878, April. .
Peterson, J. (1995). Decision-making in the European Union: Towards a
framework for analysis. Journal of European Public Policy, 2(1), 69–93.
Porter, B., Simon, J., & Hatherly, D. (2008). Principles of external auditing
(3rd ed.). Chichester, England: John Wiley & Sons Ltd.
Power, M. (1998). Auditor Liability in context. Accounting, Organizations
and Society, 23(1), 77–79.
Radaelli, C. M. (1999). The public policy of the European Union: Whither
politics of expertise? Journal of European Public Policy, 6(5), 757–774.
Risse-Kappen, T. (1995). Bringing transnational relations back. In Non-
state Actors, Domestic Structures and International Institutions.
Cambridge: Cambridge University Press.
Richardson, A. (2009). Regulatory networks for accounting and auditing
standards: A social network of Canadian and international standard-
setting. Accounting, Organizations and Society, 34, 571–588.
Samsonova, A., & Turley, S. (2012). Regulatory impact assessment in the
context pf independent regulation of accounting and auditing in the UK. A
paper presented at the Interdisciplinary Perspectives on Accounting
Conference, Cardiff, UK.
Samsonova-Taddei, A., & Humphrey, C. (2014). Transnationalism and the
transforming roles of professional accountancy bodies: Towards a
research agenda. Accounting, Auditing and Accountability Journal, 27(6),
903–932.
Shapiro, B., & Matson, D. (2008). Strategies of resistance to internal
control regulation. Accounting, Organizations and Society, 33(2–3),
199–228.
Sikka, P. (2008). Globalization and its discontents: Accounting ?rms but
limited liability partnership legislation in Jersey. Accounting, Auditing
and Accountability Journal, 21(3), 398–426.
Sikka, P. (2009). Financial crisis and the silence of the auditors. Accounting,
Organizations and Society, 34(6/7), 868–873.
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.
Slaughter & May (2013). Introduction to the legislative processes for
European Union directives and regulations on ?nancial services
matters. London: Slaughter and May.
Spence, D. (1993). The role of the national civil service in European
lobbying: The British case. In S. Mazey & J. Richardson (Eds.), Lobbying
in the European Union (pp. 47–73). Oxford: Oxford University Press.
Suddaby, R., Cooper, D., & Greenwood, R. (2007). Transnational regulation
of professional services: Governance dynamics of ?eld level
organizational change. Accounting, Organizations and Society, 32(4/5),
333–362.
Talley, E. L. (2006). Cataclysmic liability risk among Big 4 auditors.
Columbia Law Review, 106(7), 1641–1697.
Thieffry & Associates (2001). A study on systems of civil liability of statutory
auditors in the context of a single market for auditing services in the
European Union. Brussels: European Commission.
Thornburg, S., & Roberts, R. (2008). Money, politics, and the regulation of
public accounting services: Evidence from the Sarbanes-Oxley Act of
2002. Accounting, Organizations and Society, 33(2–3), 229–248.
Turley, S. (2008). Developments in the framework of auditing regulation
in the United Kingdom. In R. Quick, S. Turley, & M. Wilekens (Eds.),
Auditing, trust and governance: Developing regulation in Europe
(pp. 205–222). London: Routledge.
72 A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72
doc_302217825.pdf
In 2008, following a sustained policy campaign by the large international accounting firms,
the European Commission issued a Recommendation that European Union (EU) Member
States should limit civil liability for statutory auditors. The Recommendation, however,
was far from the firms’ desired outcome because, as a non-binding policy document, it left
it to individual Member States to decide whether (or not) and how to limit auditors’ liability
exposure. This paper analyzes the European transnational audit policy-making processes
by which such a decision was reached and what prevented the firms from
securing a more definitive EU-wide policy solution with respect to auditor liability limitation.
Risk and the construction of a European audit policy agenda:
The case of auditor liability
Anna Samsonova-Taddei
?
, Christopher Humphrey
Manchester Accounting and Finance Group (MAFG), Manchester Business School, The University of Manchester, Crawford House, Oxford Road, M13 9PL
Manchester, UK
a b s t r a c t
In 2008, following a sustained policy campaign by the large international accounting ?rms,
the European Commission issued a Recommendation that European Union (EU) Member
States should limit civil liability for statutory auditors. The Recommendation, however,
was far from the ?rms’ desired outcome because, as a non-binding policy document, it left
it to individual Member States to decide whether (or not) and how to limit auditors’ liabil-
ity exposure. This paper analyzes the European transnational audit policy-making pro-
cesses by which such a decision was reached and what prevented the ?rms from
securing a more de?nitive EU-wide policy solution with respect to auditor liability limita-
tion. Drawing on Hilgartner’s concept of a ‘risk object’, the paper reveals how a search for a
policy consensus on auditor liability was invariably frustrated by the competing conceptu-
alizations of, and exposure to, risk attributed to particular proposed liability arrangements.
As such, auditor liability emerges as a constantly shifting regulatory construct rather than a
dilemma waiting to be resolved. The study also emphasizes the residing signi?cance of the
authority of the nation state in the European audit policy context, with policy preferences
of individual EU Member States having a substantial in?uence on the outputs of European
audit policy making.
Ó 2014 Elsevier Ltd. All rights reserved.
Introduction
The past decade has witnessed a substantial growth in
accounting research concerned with issues of transnational
regulation and the existence of an international ?nancial
architecture (Arnold, 2009; Humphrey, Loft, & Woods,
2009). There has been an active level of engagement, for
example, with the work of various multinational agencies,
including the World Trade Organization and the World
Bank (Arnold, 2005; Neu, Ocampo Gomez, & Graham,
2006) as well the growing global signi?cance of accounting
and audit regulatory and standard setting initiatives
(Bengtsson, 2011; Botzem, 2012; Richardson, 2009;
Thornburg & Roberts, 2008). This literature has highlighted
the in?uence of professional (accounting) actors on the
transnational regulatory landscape (Arnold & Sikka, 2001;
Barrett, Cooper, & Jamal, 2005; Cooper & Robson, 2006;
Suddaby, Cooper, & Greenwood, 2007), supporting claims
in other professional domains (Faulconbridge & Muzio,
2011) that elite professional services ?rms increasingly
utilize relations with supranational institutions to resolve
policy issues that had failed to gain suf?cient support at
the national level and, thereby, superimpose an additional
layer of soft regulatory authority on the ‘‘traditional (i.e.
coercive) power relations that exist between nation states
and professional associations’’ (p. 356). Such regulatory
tendencies have been identi?ed, for example, in studies
of the large international accounting ?rms’ representation
on international standard setting and regulatory gover-
nance boards (Loft, Humphrey, & Turley, 2006) and theirhttp://dx.doi.org/10.1016/j.aos.2014.08.002
0361-3682/Ó 2014 Elsevier Ltd. All rights reserved.
?
Corresponding author. Tel.: +44 161 2750118; fax: +44 161 2754023.
E-mail address: [email protected]
(A. Samsonova-Taddei).
Accounting, Organizations and Society 41 (2015) 55–72
Contents lists available at ScienceDirect
Accounting, Organizations and Society
j our nal homepage: www. el sevi er. com/ l ocat e/ aos
interactions with, and even mutual dependency on, differ-
ent national audit oversight institutions (Malsch &
Gendron, 2011; Shapiro & Matson, 2008). Attention has
also been given to the mobilizing capacity of the profession
internationally to form a united policy front in the wake of
the recent global ?nancial crisis (Humphrey et al., 2009).
One of the key implications of such literature is the sub-
stantial ability of the audit profession and its largest ?rms
to shape global regulatory agendas and actions, with some
authors emphasizing the success that the profession has
had in securing desired outcomes or at least diverting
attention away from a critical questioning of contemporary
audit practice (Arnold, 2009; Sikka, 2009).
Audit liability limitation has been ?agged for many
years by large accounting ?rms as one of their key con-
cerns and pressing reform priorities (Gwilliam, 2004;
Power, 1998). After a sustained policy campaign by the
?rms to prompt EU-wide policy action, the European Com-
mission, in June 2008, issued a Recommendation
(European Commission, 2008a) suggesting that ‘‘every
Member State would be invited to introduce a liability lim-
itation, taking into account their own systems and circum-
stances’’ (European Commission, 2008b, p. 32–33). The
Recommendation, however, was a non-binding policy
instrument and not the outcome that the ?rms had strived
for. They had wanted an EU-wide binding limitation but
the Commission chose to leave any decision on auditor lia-
bility limitation to the individual national governments of
Member States (Ojo, 2009). Analytically, such develop-
ments provide a fascinating opportunity to study how
and why the agendas of accounting ?rms, with their read-
ily acknowledged capacity to engage with transnational
policy processes, were frustrated in terms of the ?rms’
ability to secure a desired policy outcome.
In examining the processes of policy development lead-
ing to the issuance of the Commission’s aforementioned
Recommendation, the paper utilizes Hilgartner’s (1992)
portrayal of a ‘risk object’ to show the highly polemical
nature of the European auditor liability debate – with
actors’ policy positions varying depending on their differ-
ing conceptualizations of, and exposure to, risk associated
with particular auditor liability arrangements (Hilgartner,
1992). The resulting array of (often, con?icting) de?nitions
of risk served to frustrate attempts at reaching a shared
policy position on the subject of auditor liability and pre-
cipitated instead a policy outcome that was substantially
less de?nitive and exacting than the large accounting ?rms
had desired. Such analysis serves to highlight the residing
signi?cance of the authority of the nation state in the
determination of EU policy. In the case of auditor liability
limitation, the overall policy outcome was clearly in?u-
enced by national policy-making experiences and the
respective standpoints of certain individual EU Member
States, illustrating in the process the connectivity between
national and transnational policy realms and the impor-
tance of viewing such realms as mutually dependent,
rather than distinctive, ?elds of in?uence.
The paper is structured as follows. The next section
outlines the complexities associated with auditor liability
as a regulatory object. The third section provides an over-
view of EU governance systems and the European audit
policy-making arena. The fourth section presents the
methodological approach applied to studying auditor lia-
bility reform in the European context. The ?fth section
analyzes the policy processes that led to the issuance of
the Commission’s aforementioned Recommendation. The
?nal two sections explain the signi?cance of the paper’s
?ndings in terms of enhancing understanding of the
dynamics of European audit policy making.
Risk and the complexities of auditor liability
The term ‘auditor liability’ is not easy to de?ne in a con-
cise, all-encompassing manner. Beyond the basic premise
that auditors need to be held liable for providing sub-stan-
dard services, the legal arrangements to support its func-
tionality comprise multiple dimensions that can vary
signi?cantly. In this section, we draw on the work of
Hilgartner (1992) and others, to show how this variability
is linked to the differences in the manner in which various
actors conceptualize liability as a source of risk. Hilgartner
characterized risks not as static facts, independent of inter-
pretation, but as contextually embedded entities whose
meanings vary and are inherently unstable. According to
Hilgartner (1992), differences in how we conceptualize risk
stem from the way we de?ne the object that poses risk and
identify it as risky by constructing causal linkages between
such an object and putative harm. In the case of auditor lia-
bility, key dimensions of variation in understandings of
risks associated with auditor liability revolve around ques-
tions, such as: who, and under what conditions, should
bear the consequences of a liability claim?; who are the
harmed (endangered) parties that have the right to
demand compensation for related damages?; and ?nally,
what should be the size of any such compensation, includ-
ing possible ways of limiting the amount claimed? The
way in which the above dimensions have been incorpo-
rated within a particular auditor liability regime has been
subject to change over time and across contexts as, bor-
rowing from Lupton (1999), ‘‘[w]hat is deemed a ‘danger’
or ‘hazard’ in one historical or cultural context may not
be so identi?ed in another’’ (p. 31–32).
A typical starting point in the audit literature for discus-
sions on auditor liability involves reference to auditors’
assumed liability in relation to contractual parties, with
the principle of privity of contract limiting liability to the
corporate body being audited (Porter, Simon, & Hatherly,
2008). The 1970s and 1980s saw a substantial extension
of liability to the point where it was asserted that virtually
any party who could reasonably be considered to have
relied on an audit opinion could claim damages against
auditors arising from negligent misstatements (Porter
et al., 2008). This was deemed an appropriate mode for dis-
ciplining auditors and also responding to public calls for
fairer treatment of ‘innocent’ third parties such as potential
investors, creditors, employees and other stakeholders
(Chung, Farrar, Puri, & Thorne, 2010; Gwilliam, 2004;
Siliciano, 1997). In subsequent years, however, these
arrangements were reconsidered. In Britain, for example,
the landmark decision by the House of Lords in the
Caparo case (1990) signi?ed a move back to a more narrow
56 A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72
understanding of the notion of stewardship. It returned the
focus to the company as a corporate body rather than a
collection of interests of individual shareholders and laid
down stricter conditions under which a duty of care could
be said to be owed by auditors. That said, it has been
argued that this period of relative calm was followed by
gradual expansions of the notion of privity by the British
courts (Napier, 1998).
One can observe signi?cant differences in auditor lia-
bility regimes across various national settings, such as
within the EU (Directorate General for Internal Market
and Services, 2006).
1
In EU Member States that placed an
emphasis on the role of auditors as public servants and
the social meaning of audit practice (e.g. France), statute
law tended to make auditors liable not merely to the client
company’s of?cers but also to shareholders and other
(third) parties. In other Member States (such as Germany
and Spain), auditors were seen to owe a duty of care
mainly to the client company, including its shareholders.
With regards to the scope of auditor liability, most Member
States followed the principle of joint-and-several liability
which implies that any individual audit partner accused
of wrongdoing can be required to pay for the whole
amount of damages, regardless of the degree of responsibil-
ity of other parties. In Member States with a limited liabil-
ity regime for auditors, the limitation mechanisms were
either in the form of: a ?nancial cap on the level of possible
liability claims (as in the case of Austria, Belgium, Ger-
many, Greece, and Slovenia)
2
; a system of proportionate lia-
bility whereby auditors are liable only for the damages
caused directly as a result of their negligent behavior (as
in Spain); or by allowing auditors to establish limited lia-
bility entities.
3
Policy making has been said to involve the construction
of a de?nition of what risk is and devising measures (policy
instruments) to control it (for a pertinent discussion, see
Hutter, 2010). The process of legal development on issues
such as auditor liability, therefore, can be envisaged as a
search for constructed meanings of risk and harms
associated with proposed auditor liability arrangements
that are capable of garnering the agreement of key policy
decision makers. Hofmann (2010, p. 66) provides a useful
characterization of such a search process as one that ‘‘does
not centre on one speci?c danger or harm but rather dis-
perses into bundles of con?icting expectations, forebodings
and conclusions, all of which are competing for hegemony’’.
What fuels such competition, as explained by Hilgartner
(1992), is the fact that harm can be linked to more than
one risk object as ‘‘one can always construct many potential
branches to the chains of causation that lead to disaster’’ (p.
42). Constructing, rede?ning and promoting such linkages
is a rhetorical struggle aimed at emplacing risks (i.e., turning
them into something to be reckoned with) as well as dis-
placing particular risks (i.e., stripping them of their signi?-
cance) through what Hilgartner termed the conceptual
‘network’ used by regulatory decision-makers as their key
reference in policy deliberations. Such struggles, most often
localized within the communities of professionals, political
elites and technical experts, ‘‘have important political
implications’’ as they can ‘‘redistribute responsibility for
risks, change the locus of decision making, and determine
who has the right – and who has the obligation – to do
something’’ (p. 47). In other words, they ‘‘question the
rationality of regulatory arrangements’’ (Hofmann, 2010,
p. 48) in a way which can either halt or give momentum
to particular policy initiatives.
In the following sections, we will draw on the above
conceptual framing to analyze the struggles between the
competing de?nitions of risks and harms attributed to par-
ticular auditor liability arrangements and related policy
proposals and their impact on European debate over audi-
tor liability limitation. In so doing, de?nitions of risk and
associated dynamics of policy deliberation emerge as a
product of social construction by the policy actors
concerned but also capable of being shaped by dramatic
environmental developments and scandals, such as the
Enron collapse, which are used as powerful reference
points in the rhetorical repertoire of both proponents and
opponents of auditor liability limitation.
Policy making in the EU
Apart from being a confederation of 27 Member States,
the EU is also a vibrant example of a transnational regula-
tory ?eld (Andersen & Eliassen, 1996; Coen, 2007;
Greenwood, 2007). Djelic and Sahlin (2006, 2010) provide
a view of such a ?eld as a multi-level dynamic policy arena
emergent ‘‘from complex and multi-nodal processes,
where competition combines with collaboration’’ (Djelic
& Sahlin, 2010, p. 179) and which is able to ‘‘generate
and reproduce order behind an appearance of complexity
and competition’’ (p. 195). This governance mode virtually
diffuses the decision-making authority and places an
increased emphasis on the need for policy actors to ratio-
nalize their policy choices and justify the processes by
which they were determined. Reliance on the inputs and
inferences of experts has been viewed as an increasingly
important rationalizing instrument in this regard, with
1
The presented details of the national liability regimes relate to the time
preceding the issuance of the 2008 Recommendation by the Commission.
2
The cap could be stipulated in the civil law or set out in the contract
between the auditor and the client and take the form of an absolute
monetary limit or a ?xed percentage of the audit fee. For example, in
Greece, the liability cap was linked to the salary of the President of the
Supreme Court. In Belgium and Austria, the law stipulated the cap with
respect to claims by third parties, whereas German commercial law only
capped claims by the client (although, in certain cases, the courts could
decide to extend liability, and consequently the cap, to third parties)
(Gietzmann & Quick, 1998).
3
In Britain, for example, KPMG was the ?rst accounting ?rm that, in
1995, chose to incorporate and form what became known as KPMG Audit
Plc. During the same period, Price Waterhouse (which later became part of
PricewaterhouseCoopers) and Ernst & Young launched a lobby campaign to
push for legislation that would allow British auditors, like their colleagues
in the U.S., to form Limited Liability Partnerships (LLPs), with the intent that
it would offer a greater protection to the accounting ?rms’ individual
partners and their personal assets (Sikka, 2008). In 2001, Ernst & Young was
the ?rst accounting ?rm to register as a LLP, after relevant provisions had
been introduced by the British government in its LLP Act, 2000. More
recently, changes to the Companies Act, 2006, allowed shareholders of the
audited company to agree to limit auditor liability by contract to a level
determined by the court in proportion to the extent of auditor’s respon-
sibility for the damages incurred (Turley, 2008).
A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72 57
the meaning of expertise having evolved to emphasize pri-
vate interests and market dynamics (Djelic & Sahlin, 2010).
Since its foundation under the Treaty of Rome, the EU
has held the creation of the European Single Market as
one of its key policy priorities. Inter alia, this has involved
the development of common law to create a uniform infra-
structure for the functioning of the European capital mar-
ket for corporate ?nancing, including harmonized rules
for ?nancial accounting and audit practice (Dewing &
Russell, 2002, 2008; Haller, 2002; Maijoor, Buijink,
Meuwissen, & Witteloostuijn, 1998). Such a system of
law is constituted of different forms of legal acts, both
binding and non-binding, depending on speci?c policy
objectives. Among the three binding forms of legislation
are (1) Regulations – which represent the most direct form
of EU law as they are applied in their entirety across all EU
Member States in the same way as national law would be;
(2) Directives – which set out the policy objectives to be
achieved by all Member States but leave it to the national
governments to decide on the speci?c ways to implement
them; and (3) Decisions – legislative acts targeting speci?c
issues or directly applicable to a speci?ed party (such as an
EU Member State or an individual business entity). In con-
trast, non-binding legislative acts, such as Recommenda-
tions, allow ‘‘the [EU] institutions to make their views
known and to suggest a line of action without imposing
any legal obligation on those to whom it is addressed’’.
4
The setting of the EU’s policy agendas, as well as the
development of new and revised legislation, is in the hands
of the so-called ‘decision making triangle’, i.e. the three key
legislative bodies, including the European Commission, the
European Parliament and the Council of Ministers. The
Commission, which in matters relating to the European
Single Market is led by the Internal Market and Services
Directorate General, has the right to legislative initiative
and hence is responsible for the preparation of draft law
as well as the general coordination of processes of policy
development. The remit to consider proposed legislation
rests with the Council which is effectively a collective body
representing governments of European Member States.
While the Council’s decisions on many European policies
are reached by a ‘quali?ed majority’ vote (where each
Member State is allocated a set number of votes depending
on the size of its population), other policy proposals, such
as on issues relating to company law directives, usually
require unanimous approval. Moreover, the Council shares
its legislative power with the European Parliament under
the so-called ‘co-decision’ procedure. It means that a legis-
lative proposal is ?rst discussed in Parliament and, if the
resulting wording of the draft law is subsequently
approved by the Council, becomes formal law or, other-
wise, is passed back for further Parliament readings and
discussions with the Council. Consideration of policy pro-
posals in Parliament is administered by a lead Committee,
with a MEP (Member of European Parliament) acting as a
Rapporteur. The Committee on Economic and Monetary
Affairs (ECON), for example, is Parliament’s key committee
in the area of accounting and audit regulation; also, it is
often assisted by other committees, such as the JURI (Legal
Affairs) Committee (Peterson, 1995; Slaughter & May,
2013).
One of the claimed traits of transnational policy making
is that law-makers seek means to ensure that the norms
they produce are seen as the ‘right’ solutions to the prob-
lems at hand and, ultimately, to facilitate less problematic
compliance (Nölke, 2003; Risse-Kappen, 1995). This is
achieved by demonstrating that the processes of policy for-
mulation (and by association, their outcomes) are proce-
durally fair and representative of the interests of various
policy stakeholders. Such a trend toward a more participa-
tory approach to policymaking, or so called ‘deliberative’
democracy, is at the core of European policy making -
being seen as the EU’s response to long-held concerns over
the de?cit of democratic legitimacy stemming from EU
senior politicians’ posts not being democratically elected
positions (Greenwood, 2007). ‘‘The thorny issue of inte-
grating expertise and democracy’’ (Radaelli, 1999, p. 770)
has meant that, besides representatives of the national
governments, private actors (such as, professional entities,
corporates, industry unions, and other market partici-
pants) are routinely invited to provide ‘expert’ input into
EU policy formulation which is administered by the Com-
mission. The opportunity for experts to in?uence policy
is signi?cant, with it being argued that processes of policy
formulation are ‘‘a critical determinant of eventual policy
outputs’’ (Peterson (1995, p. 8) quoting Hull (1993, p. 83)).
It is, therefore, unsurprising that, over the years, the
Commission is said to have experienced an ‘‘explosive
growth of direct interest representation’’ (Andersen &
Eliassen, 1996, p. 45) and become a ‘‘hothouse’’
(Peterson, 1995, p. 69) for different groups of transnational
policy actors converging around various issues of impor-
tance (Coen, 2007; Coen & Richardson, 2009). Eberlein
and Grande (2005), for example, explain that such external
interest groups:
[. . .] are composed of experts and representatives of
national regulatory bodies, who come to agreement
among themselves, guided or supported by European
bodies. If necessary, they are joined by economic actors
or the regulatory addressees concerned
[. . .] [in order to] develop common ‘best practice’ rules
and procedures for regulation in their sector. (p. 100).
One can also observe the institutionalization of inde-
pendent commercial consultancies as signi?cant actors in
EU governance, operating as intermediaries between the
EU’s bureaucratic machinery and the world of academic
research. This represents a continuing shift in the nature
of European interest representation towards professional-
ism and competitiveness (see Lahusen, 2002), with the
Commission being intent on demonstrating that its
approach to policy-making is both competent and based
on independently veri?ed analytical assumptions. In this
regard, research ?ndings produced by commercial consult-
ancies have arguably served not just to inform European
public policy arena but also to de-politicize polemical pol-
icy deliberations (Andersen & Eliassen, 1996).
4
Seehttp://europa.eu/about-eu/basic-information/decision-making/
legal-acts/index_en.htm.
58 A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72
In addition to the above ‘technocratic’ rationality (con-
structed by reference to expert knowledge provided by pri-
vate actors), the Commission’s general approach to policy
making also comprises an ‘administrative’ rationality,
which stems directly from the need to ensure that there
is suf?cient administrative power to implement the policy
proposals at the national level (see Peterson, 1995, p. 73).
In this sense, the administrative rationality serves a
restraining role, in that it motivates the search for a con-
sensus between policy technocrats in order to ‘‘legitimize
the choices offered to political decision-makers [Council
of Ministers and Parliament] as workable policy solutions’’
(Peterson, 1995, p. 74).
In such a policy-making arena, the power asymmetries
between transnational policy institutions of the EU and
national policymakers can be signi?cant. As Halliday and
Caruthers (2007, p. 1148) have argued, transnational
policymakers (such as the EU) can more strongly in?uence
development of transnational rules (what they call ‘law on
the books’), while the source of power for national policy-
makers is that they effectively control translation of such
rules into national law (‘law in action’). Further, national
policymaking experiences and perspectives are assimilated
within the design of transnational policy ‘‘through the par-
ticipation of national lawmakers on the committees and
panels of international organizations’’ (Halliday &
Caruthers, 2007, p. 1148). In this regard, national policy-
makers are not merely the recipients of the outputs of
transitional policy making (the premise that has attracted
most attention in prior research) but represent signi?cant
forces capable of in?uencing and even determining the
nature of such outputs. As noted earlier, in the context of
the EU, it is the Council of Ministers where ‘‘most of the
‘national interest’ is de?ned and decided’’ (Spence, 1993,
p. 50) and where the Commission’s policy proposals are
scrutinized by responsible national government of?cials
and voted on. In addition, representatives of the national
governments are also frequent members of various discus-
sion groups and committees set up under the Commis-
sion’s remit with the purpose of facilitating the debating
of a particular policy issue. There is often limited or no
public record of what goes on in such meetings, but they
provide a vital stage for intermediation between the
national and transnational policymaking arenas, and
subsequently revealing signi?cant differences of opinion,
con?icts and even instances of national resistance.
Studying auditor liability reform in a European context
In order to analyze the development of European policy
debate on auditor liability limitation and the in?uence of
different interest groups and related agendas, we ?rst con-
structed a summary of key events and identi?ed a number
of apparently in?uential players (see Table 1 for the audit
liability events timeline and Fig. 1 for a diagrammatic rep-
resentation of the associated transnational policy actors).
In outline terms, the large accounting ?rms
5
played a
major part in advocating the profession’s case for liability
limitation, with supporting coordination work being under-
taken by the European Contact Group (ECG), a body set up to
represent the ?rms in their dealings with European
governance institutions, particularly the Commission and
the Parliament. Established in 1993 in Brussels, the ECG
was classi?ed at the time as a rare case of cooperation
Table 1
A timeline of key events.
Year Key events
1996 Two studies – Buijink et al. (1996) and FEE (1996) – draw attention to the diversity of European countries’ liability regimes as an area of
concern. The European Commission’s Green Paper (European Commission, 1996) on the position and liability of auditors in Europe is followed
by an of?cial consultation and a conference. These acknowledge the negative effects of unlimited liability but reject the need for an action at
an EU level
1998 In May, the European Commission publishes a Communication (European Commission, 1998b) which leads to the establishment of the
Committee on Auditing composed of external experts, including the audit profession’s representatives
2001 In March, the European Commission publishes a comparative study on 15 European Member States (Thieffry & Associates, 2001) which
acknowledges the variation in national liability regimes but claims it has no signi?cant impact on the development of a European Single
Market. In October, Enron scandal starts unfolding
2002 In April, the European Commission issues a paper ‘‘A ?rst response to Enron related policy issues’’ (European Commission, 2002a) which
outlines a series of preventive measures in Europe; but makes no mention of the need for a reform of auditor liability
2003 In May, the European Commission issues a Communication ‘‘Reinforcing the statutory audit in the EU’’ (European Commission, 2003) setting a
new regulatory framework for the statutory audit. This is thought to signal a start of a new ‘‘hands-on’’ approach to audit regulation in Europe;
the issue of auditor liability is still not addressed
2005 The European Forum on Auditors’ Liability is set up comprising 20 experts (i.e. members of the European regulatory, audit professional,
academic, investment, banking, insurance, and corporate communities) to assess potential solutions for moderating auditors’ litigation risk
2006 The EU publishes the revised Eighth Company Law Directive (2006/43/EC) on Statutory Audits of Annual Accounts and Consolidated Accounts.
Article 31 of the Directive requires that the European Commission examines the effects of Member States’ liability regimes on the European
capital market. As a result, the Commission appoints the commercial consultancy ?rm, London Economics, to carry out a study into the issue.
The study report (London Economics, 2006) is published in October
2007 In January, the European Commission launches a public consultation on the issue of auditor liability involving a broad range of policy
stakeholders. A summary of responses to the consultation are published in June (Directorate General for Internal Market, 2007b)
2008 In June, the European Commission publishes the Recommendation Concerning the Limitation of the Civil Liability of Statutory Auditors and Audit
Firms (2008/473/EC) which suggests that the Member States should take action to limit auditor liability using any of the several methods
proposed
5
The largest international accounting ?rms include the ‘Big Four’ ?rms
(PricewaterhouseCoopers, KPMG, Deloitte Touche Tohmatsu, Ernst &
Young) plus two leading mid-tier ?rms (Grant Thornton and BDO). These
?rms carry out the vast majority of audits of listed companies worldwide
and have long maintained the position of the global audit market leaders.
More recently, all these ?rms have been commonly referred to as the ‘Big
Six’. In this paper, when we use the term ‘large accounting ?rms’, we are
generally referring to the ‘Big Six’.
A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72 59
between the large accounting ?rms on a transnational policy
stage (see Kelly, 1996). It is an organization with limited
public visibility, having no of?cial website. Initially, the
Group had eight members, one representative (a senior part-
ner) for each of the then eight largest accounting ?rms
(Manardo, 1996). Subsequently, the number of members
rose and now amounts to nineteen individuals representing
the six largest accounting ?rms and also covering eleven EU
member states – a membership pro?le which has been said
to enable the ECG to survey policy sentiment not only within
the ?rms themselves but also within different national
environments (Jennings, 2010).
6
Other actors actively repre-
sented in the European debate on auditor liability limitation
included professional accountancy associations (such as the
Fédération des Experts Comptables Européens – FEE), various
regulatory agencies, users of audit reports (including mem-
bers of the investment, banking and corporate sectors),
and representatives of European Member States, with dis-
cussion fora such as the European Committee on Auditing
and European Auditor Liability Forum playing an important
liaison role in terms of attempting to resolve con?icting
positions across key players. A commercial consultancy, Lon-
don Economics, was also commissioned to provide ‘evi-
dence-based’ inputs into European policy deliberations.
In documenting the pursuit of auditor liability limita-
tion reform, we reviewed an extensive set of publications
in the professional auditing and business press covering
the issue of audit regulation in general and auditor liability
in particular. We also consulted documents prepared by EU
institutions and of?cials, such as policy drafts, studies,
communications, public consultation reports and stake-
holder responses, conference proceedings, meeting min-
utes, and public pronouncements. Relevant web
resources, including the web-pages of the EU’s key bodies
(the European Commission, the Parliament, and the Coun-
cil of Ministers), were analyzed to assist in the mapping of
a dynamically evolving gathering of policy actors involved
in the liability debate. We also bene?ted from access to a
range of internal documents made available by members
of the large accounting ?rms who, at various points in
time, had represented the audit profession at the European
level. These included minutes from meetings with the
European Commission of?cials, presentations made during
those meetings, relevant correspondence, internal notes,
and various other materials detailing their interactions at
the EU level. Also, some valuable additional insights into
Title: Key
P r i n c i p a l l e g i s l a t o r s
agenda setting and policy endorsement
E x e c u t i v e b o d y
policy drafting
European Union
European Parliament
(JURI and ECON Committees)
Council of Ministers
European
Commission
Directorate General
Audit Unit
Private professional interests
FEE
Large accounting
firms
ECG
IAASB
Representatives
of the Member
States
Insurers
Investors
Corporations
Banks
Other policy stakeholders
Discussion forums and advisors
Forum
On
Auditor
Liability
London
Economics
International standard-
setting and regulatory bodies
Title: Key
IFAC
ICAEW
Academics
Fig. 1. Key transnational interests participating in the European debate on auditor liability.
6
Globally, the large accounting ?rms established the Global Public Policy
Committee (GPPC), a coordinatory body consisting of two working groups –
the ‘Standards Working Group’ and the ‘Regulatory Working Group’ focused
on public policy, regulatory and professional matters. The GPPC has worked
closely with international regulatory agencies, such as the International
Accounting Standards Board, Financial Stability Forum (now Board),
International Organization of Securities Commissions, and others on issues
relating to various aspects of public policy (Humphrey & Loft, 2011). In
Europe, however, the ?rms’ joint efforts at in?uencing the EU’s regulatory
arena have been coordinated largely by the ECG.
60 A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72
the audit community’s representation in the EU gover-
nance institutions were sourced from the archives of IFAC
and a number of European professional accountancy
bodies/organizations, including FEE and the Institute of
Chartered Accountants in England and Wales (ICAEW).
The robustness of ?ndings derived from such documen-
tary analysis was enhanced by cross-checking against evi-
dence and opinions obtained from a series of interviews
that we subsequently conducted, in 2009–2010, with nine
high-pro?le individuals – all of whom held senior positions
of engagement and in?uence in the EU policy arena with
respect to the auditor liability limitation debate, including
representatives of the large accounting ?rms, professional
accountancy organizations (such as ICAEW and FEE), the
European Commission, and the commercial consultancy
?rm London Economics. For the purpose of the historical
analysis presented here, the interviews were used primar-
ily to verify factual data collected from documentary
reviews and to assist in our assessments of substantive
policy standpoints taken by different interest groups.
The making of a case for reform: shifting regulatory
sentiment through professional interest representation
Viewing risk as a conceptually ?uid, socially constituted
category readily invites analysis of the dynamics of
rhetorical struggles that underlie the development of audit
policy agendas and are concerned with constructing
(deconstructing) ‘‘networks of causal attributions’’ linking
risk objects to harm. Hilgartner (1992, p. 41) notes, in this
regard, that objects are not ‘‘simply waiting in the world to
be perceived or de?ned as risky [. . .] [nor do] linkages
among objects simply exist ‘‘out there’’ in reality’’. Rather,
constructing risk objects that require regulatory attention
‘‘as things that pose hazards, the sources of danger, the
entities to which harmful consequences are conceptually
attached’’ (p. 41) necessitates collective sense-making by
people and organizations. Viewed from this perspective,
auditor liability risk is not a ready-made policy issue wait-
ing to be resolved; it is something that is being continu-
ously de?ned and rede?ned through processes of
rhetorical attribution involving a variety of actors operat-
ing, in our chosen case, within the European public policy
arena. Further, as Hilgartner (1992, p. 42) emphasizes,
‘‘the world does not present itself prepackaged into unam-
biguous and clearly-differentiated objects’’, and hence,
such processes of constructing risk objects and the related
frames of reference are ‘‘fundamentally ambiguous’’. This
ambiguity, among other things, manifests itself in the dif-
ferences between early conceptualizations of auditor lia-
bility by the EU’s political establishment more concerned
with a broad-based assessment of the risks it poses and
by the large accounting ?rms and professional bodies
focusing on the risks speci?cally associated with unlimited
(i.e. joint-and-several) liability.
The EU’s Eighth Company Law Directive on statutory
audit (84/253/EEC) issued in 1984 did not speci?cally refer
to auditors’ legal responsibilities or to the circumstances
under which auditors could be held liable; merely stating
that it was up to individual Member States to determine
appropriate liability arrangements. In subsequent years,
the topic of auditor liability started to be raised in EU reg-
ulatory circles as an issue linked to the effective function-
ing of the European single market, itself being a central
focus of European policy. In 1994, for example, John Mogg,
then Head of the Directorate General for Internal Market
and Financial Services, asserted in his speech at FEE Gen-
eral Assembly that differences in the national liability sys-
tems ‘‘might prevent the creation of a level playing ?eld’’
and that ‘‘the issue is suf?ciently important to warrant
our attention’’ (European Commission, 1994).
Such pronouncements by senior EU of?cials came
amidst publicly expressed concerns by representatives of
the accountancy profession about the absence of a uniform
European policy with respect to auditor liability. Speci?-
cally, FEE (1992) in its representative role for the European
accountancy profession, noted that signi?cant differences
in EU countries’ liability regimes were unacceptable and
recommended the replacement of the joint-and-several
liability principle with a system of proportionate liability.
These assumptions were echoed three years later by IFAC
in a report presenting the results of an opinion survey of
its member bodies (IFAC, 1995). The large accounting ?rms
were also collectively pointing to the adverse conse-
quences of an ‘‘epidemic of litigation’’ and a need for audi-
tor liability limitation (Arthur Andersen & Co., Coopers &
Lybrand, Deloitte & Touche, Ernst & Young, & KPMG Peat
Marwick & Price Waterhouse, 1992, p. 1). They argued that
stakeholders were increasingly relying on auditors’ ‘deep
pockets’, regardless of the relative degree of their culpabil-
ity, and that claims against them were disproportionate
both to their wealth and the audit fees received from their
clients (Lochner, 1993).
There were a number of important events which, collec-
tively, signi?ed the start of an EU-wide debate on the
development of a European audit market and the nature
of auditors’ responsibilities, with auditor liability being
seen as one of the pertinent issues for discussion. Such
events included the publication of an independent study
(Buijink, Maijoor, Meuwissen, & Van Witteloostuijn,
1996) initiated by the Commission which concluded that
differences in EU Member States’ liability arrangements
could have an adverse effect on the European audit mar-
ket
7
and, shortly after, the issuing of the Commission’s
Green Paper ‘‘On the Role, Position and Liability of the Stat-
utory Auditor within the European Union’’ (European
Commission, 1996a). The Commission’s position on auditor
liability limitation in the Green Paper acknowledged that
‘‘the liability of the auditor should be limited to amounts
which re?ect his degree of negligence’’ (European
Commission, 1996a, art. 5.6), while, at the same time, mak-
ing it clear that the capacity for any policy action should rest
with Member States and not with the EU institutions:
7
The United Nations Conference on Trade and Development (UNCTAD),
through the framework of the annual meeting of its Intergovernmental
Working Group of Experts on International Standards of Accounting and
Reporting (ISAR) also held, in March 1996, a one-day Forum on the
Responsibilities and Liabilities of Accountants and Auditors. See http://
www.unctad.org/templates/web?yer.asp?docid=3644&intItemID=2298&
lang=1
A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72 61
Action at EU level in this ?eld is likely to be dif?cult. The
audit profession is not the only profession which is
struggling with problems of liability. Furthermore, the
legal traditions in Member States in the area of civil lia-
bility are quite different.
[(European Commission 1996a, art. 5.7)]
Following a consultation period on the Green Paper, the
Commission arranged, in December 1996, a conference
which provided a platform for a wide variety of transna-
tional interest groups to express and discuss their views
on the issue of auditor liability limitation. In Hilgartner’s
(1992) terms of reference, such interest groups may be
referred to as ‘‘an eclectic lot, linked together by complex
and shifting alliances and struggles’’ (p. 45), serving key
roles as constructors of networks of causal attribution link-
ing risk to harm in ways that serve to inform and shape
processes of European audit policy development. In the
case of European auditor liability debate, such heteroge-
neous groups included the Members States’ audit regula-
tory bodies, users of audit reports (such as the corporate
sector, investment organizations, banks, and insurance
companies), the academic community, national and regio-
nal professional accountancy associations, and large
accounting ?rms themselves (European Commission,
1996b). Rather than acting individually, the ?rms came
to an agreement that ‘‘their arguments will be strength-
ened by the manner in which they reply’’, and therefore,
produced a joint response to the Green Paper
(Accountancy Age, 1996). This response was coordinated,
on behalf of the ?rms’ European of?ces, by the ECG who,
subsequently, gave two presentations at the Conference.
The conference speech by the ECG’s Chairman at the time,
Jacques Manardo (a founding partner of the French prac-
tice of Deloitte Touche Tohmatsu) outlined the key points
of the ?rms’ response (Manardo, 1996) presented in the
form of an Action Plan (European Contact Group, 1996).
Interestingly, although the ECG had been working on the
Plan since 1993, it released the ?nal version a day before
the Conference effectively as a way to set the agenda for
subsequent debate and discussions at the Conference
(Kelly, 1996). The Plan was intended to provide the basis
for change in EU Member States to support moving
towards a single market in auditing, free of government
intervention, and a self-regulated audit profession in
Europe. With regards to the issue of auditor liability, the
Plan pointed to signi?cant differences across national audi-
tor liability regimes in Europe and recommended that in
order to moderate the rapid increase in litigation exposure
‘‘an auditor’s liability should be restricted to levels which
re?ect the auditor’s real share of fault’ by moving ‘from
the concept of joint and several liability to that of propor-
tionate liability’’ (European Contact Group, 1996, p. 14).
The other ECG contribution was from Ian Brindle (the then
UK Chairman of Price Waterhouse) who participated in a
panel session on auditor liability. Drawing on his experi-
ence of auditing in the UK, Brindle pointed to what he
saw as inconsistencies in national auditor liability regimes,
not only in the UK but also in countries, such as Germany,
‘‘where there is a statutory cap on audit liability [. . .] [but]
it is unclear whether the auditor could still be exposed to
civil liability claims from third parties under general con-
tract and tort law’’ (European Commission, 1996b, p. 204).
Overall, the conference reiterated the divergence in
opinion on the subject of auditor liability between players
such as large accounting ?rms and other stakeholder
groups, which was concisely captured by Karel Van Hulle
(at that time, Head of the Commission’s Financial Informa-
tion Unit) when providing an overview of the collected
comments on the Green Paper’s coverage of this issue:
The commentators from the accounting profession
regret the absence of a clear message in the Green Paper
that a limitation of liability should be organised at EU
level. Most other respondents think that there is no jus-
ti?cation for reducing the professional liability of audi-
tors as opposed to other professionals.
[(European Commission, 1996b, p. 30).]
The Green Paper, however, was indicative of the grow-
ing signi?cance of auditing regulation as an EU policy
priority and the Commission duly established, in 1998, a
Committee on Auditing (European Commission, 1998, par-
agraph 3.2) – with the intent of providing a platform for
systematic interactive exchanges between representatives
of the European and international regulatory communities
(such as the Commission’s of?cials, the Member States’
audit regulatory bodies and international audit standard
setters), professional bodies and institutes representing
the accountancy profession (including FEE, the European
Federation of Accountants and Auditors for Small and Med-
ium-sized Enterprises, European Confederation of Insti-
tutes of Internal Auditors), and the ECG.
8
The Commission committed to the investigation of
extant national auditor liability practices (European
Commission, 1998: paragraphs 3.14–3.15), leading to the
publication, in January 2001, of a comparative study of ?f-
teen Member States (Thieffry & Associates, 2001).
Although acknowledging signi?cant differences between
countries, the study chose not to endorse the views of
the profession and aforementioned reports by FEE (1992)
and IFAC (1995) – and, instead, lent support to the Com-
mission’s argument that national complexity was an over-
whelming obstacle to convergence.
Policy intransigence amidst an audit crisis
The dynamics of struggles over the construction of risk
may change dramatically as ‘‘unpredictable developments
in these struggles propel objects back and forth along a con-
tinuum of emplacement and displacement’’ (Hilgartner,
1992, p. 49). In the case of auditor liability limitation in
the EU, one such signi?cant incident was the demise, in
2001, of the US energy giant, Enron, and its auditor, Arthur
Andersen, one of the then Big Five accounting ?rms. The
collapse of Enron set the scene for the revisiting of extant
de?nitions of risk attributed to the auditor liability issue
8
The Committee continued its work until 2005 when it was replaced by
a newly formed European Group of Auditors’ Oversight Bodies (EGAOB), a
coordinating agency representing national audit regulators of EU Member
States.
62 A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72
and the construction of new linkages between risk and
putative harm. It was used by the large accounting ?rms
as a powerful reference point with which to strengthen
their rhetoric in favour of limiting auditor liability, speci?-
cally by arguing that the case represented a clear practical
demonstration of the real possibility of other large account-
ing ?rms exiting the market (Talley, 2006).
By emphasizing their roles as the primary suppliers of
audit expertise and recipients of audit regulation, the large
accounting ?rms sought to gain greater access to, and
in?uence over, the key institutions of the EU’s system of
transnational governance (Andersen & Eliassen, 1996;
Djelic & Sahlin, 2010). The ECG took part in the aforemen-
tioned European Committee on Auditing, and two of its
meetings, in 2001 and 2002, were particularly instrumen-
tal in placing the auditor liability issue ?rmly on the Com-
mittee’s agenda. At the Committee’s meeting in Paris in
2001, an invited presentation by Richard Murray (the then,
UK-based, Global Director of Legal and Regulatory Affairs
for Deloitte Touche Tohmatsu) pointed out that excessive
auditor liability was unhealthy and that capital markets
would suffer as a result because auditors were made to
bear most of the risk while a company’s management
enjoyed signi?cant entrepreneurial rewards with low risk
attached. Alongside Murray, a second presentation at that
meeting, by Richard Fleck,
9
of the UK-based law practice
Herbert Smith, reviewed the developments in company
law in Britain to make a case for the need to limit existing
levels of auditors’ liability exposure. In a subsequent presen-
tation at the Committee’s meeting in 2002, amidst the ?nal
stages of Arthur Andersen’s collapse, Fleck forcefully argued
that the unfolding events were vivid reminders of how ‘‘the-
ory [. . .] [could] become a reality’’.
The minutes from the Committee meeting (European
Commission, 2002b) provide clear evidence of the differing
of?cial positions taken by European Member States on the
issue of liability limitation. The German representative, for
example, agreed that the Commission needed to address
the liability issue, but at the same time an argument was
made that there was little hope in any calls for a European
liability reform actually succeeding because ‘‘it would be
dif?cult to ?nd a common legal ground to achieve harmo-
nization’’ (European Commission, 2002b). The French rep-
resentative remained more cautious, arguing that Fleck’s
analysis omitted ‘‘a necessary element of self-criticism of
the profession by the profession’’ and adding that ‘‘if the
large ?rms want to convince EU regulators that there is a
problem, they should put all the facts on the table’’. The
meeting’s key outcome was a decision to include a refer-
ence to auditor liability in the Commission’s then forth-
coming Communication on the statutory audit priorities
in Europe in the post-Enron era. Despite this commitment,
the personal views of some senior Commission of?cials
were still quite sceptical over the possibility of regulatory
intervention. Frits Bolkestein (at that time a European
Commissioner for the Internal Market and Taxation), for
instance, asserted at a conference at the London Under-
writing Centre in March 2003:
[...] in the current economic climate, I think there would
be little support for a regulatory intervention which
would generally limit auditor liability. After so many
major ?nancial reporting scandals and potential audit
failures, regulators need to act to restore investor con?-
dence. An intervention limiting liability, to my mind,
would not serve to revive the trust of investors.
[(Bolkestein, 2003)]
In his speech, Bolkestein provided what he saw as four
reasons for not limiting liability. First, he reiterated the
Commission’s longstanding stance that unlimited liability
is a driver of audit quality, adding that liability systems
exist for the protection of those who suffered damage
(claimants) and not for the convenience of those who
may be at fault. Secondly, he saw the aforementioned ‘deep
pocket’ approach as being principally sound as it meant
that the claimants ‘should not have to shoulder the burden
of suing separately all parties which have a partial respon-
sibility for proper ?nancial statements’, noting that the
concept of joint-and-several liability was adequate.
Thirdly, he saw increased auditor liability as being a
self-created problem for the audit profession, in that the
(global) expansion of accounting ?rm networks had signif-
icantly increased the risk that an audit failure of one local
member may damage the whole network. Finally, Bolke-
stein reasoned that audit, by its very nature, is a function
carried out in the public interest and that third parties
should be in a position to claim damages in cases of fraud-
ulent ?nancial reporting. He demanded greater clarity on
the scale of claims against auditors, asserting that many
cases had been too easily settled out of court. Crucially,
though, Bolkestein admitted that a change in the negative
market sentiment towards auditors could potentially
revive the liability debate, and that, in principle, the Com-
mission could consider updating existing EU law, such as
the EU’s Eighth Company Law Directive on auditing
(Bolkestein, 2003).
The above discussion demonstrates how the conse-
quences of the Enron collapse were used to justify two
opposite policy positions on the need for auditor liability
limitation. On the one hand, the proponents of limited
liability, speci?cally the large accounting ?rms, used the
Enron disaster, in Hilgartner’s (1992) terminology, to
emplace more forcefully in the ‘conceptual web’ of
European policy making the notion of unlimited auditor
liability systems as a source of signi?cant risk. Speci?cally,
the ?rms employed forceful rhetoric to build strong causal
linkages between unlimited liability regimes and what was
presented as the ‘catastrophic’ harms of ‘excessive’ liability
exposure, namely: ‘a large accounting ?rm failure’ and an
‘irreparable’ damage that such an event would cause to
the audit profession as a whole. Furthermore, the ?rms
also made attempts to ‘‘redistribute responsibility for
risks’’ arising from existing liability arrangements as well
as promoting a policy obligation ‘‘to do something’’
(Hilgartner, 1992, p. 47) by contrasting their position
against that of company management who supposedly
9
Richard Fleck subsequently became the Chair of the UK’s Auditing
Practices Board (APB).
A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72 63
carried the lowest risk while enjoying signi?cant ?nancial
reward.
The arguments advanced by the opponents of limiting
auditor liability, on the other hand, chose to emphasize dif-
ferent issues and risks. Bolkestein’s argumentation shifted
the emphasis from the large accounting ?rms’ focus on
how responsibility to compensate liability claimants
should be allocated to the rights of claimants and how best
to protect their rights. By disregarding the linkage between
unlimited auditor liability and the ‘deep pockets’ syndrome
and emphasizing instead auditors’ social obligations and
extended rights of third parties, such argumentation was
designed effectively to displace (i.e. to remove the capacity
to in?uence – Hilgartner, 1992) the de?nitions of risk con-
structed by the large accounting ?rms.
The rhetorical linkages advanced by Bolkestein were by
no means unambiguous or neutral re?ections of reality.
Rather, they were used selectively to support and justify
particular policy stances. Indeed, Bolkestein’s comments
on auditor liability contrasted quite markedly with his
own views on another harmonization agenda promoted
as part of the single European market, i.e. that of interna-
tional accounting standardization, and what he saw as a
long-awaited decision by the EU to introduce a require-
ment that, by 2005, consolidated accounts of listed compa-
nies needed to comply with International Accounting
Standards (European Commission, 2001). He asserted at
the time that corporate scandals, like Enron, serve to dem-
onstrate the importance of such harmonizing reform ‘‘even
more strongly’’ (Bolkestein’s 2002 public address, quoted
in European Commission, 2004).
Continuing direct representation of professional interests
In May 2003, the Commission issued a Communication
(European Commission, 2003) identifying a number of
targets for a European reform of audit legislation in the
post-Enron era, including a planned revision of the Eighth
Company Law Directive and the formation of an Audit Reg-
ulatory Committee to oversee its implementation. With
respect to the issue of audit liability, the Communication,
despite calls for reform from the proponents of liability
limitation, stated that neither harmonization nor the limit-
ing of auditor liability were necessary. However, it did
acknowledge that there was a need ‘‘to examine the
broader economic impact of present liability regimes’’
(European Commission, 2003, paragraph 3.10).
In 2004–2005, the ECG, led by its new chair, Jeremy
Jennings (an Ernst & Young partner based in Brussels), held
talks with several senior MEPs (Chapman, 2004a). The pri-
mary focus of the discussions, also pushed forward in rel-
evant pronouncements by FEE (2004), was on the ECG’s
proposal that the revised Eighth Directive should contain
a requirement that Member States introduce a form of lim-
itation of auditor liability – to counterbalance what was
seen as a suggested substantial expansion of auditors’
duties in the new text of the Directive. Documents
obtained from the ECG indicate that, in addition to inter-
acting with the European Parliament, it was also, through
its network of national contacts, holding discussions
‘behind the scenes’ with national lawmakers of individual
Member States. Such informal talks were duly demonstrat-
ing that national differences in viewpoints on the need for
liability reform remained strong. Countries with existing
regimes of limited liability or those contemplating it, such
as Austria, Greece, and Spain, reacted favorably to the
ECG’s concerns. Furthermore, the notes of a meeting with
a representative from Germany, where a cap on liability
had been in place for a number of years, showed that the
German government’s position had remained unchanged
from that expressed at the aforementioned meeting of
the EU Committee on Auditing in 2002 – where, in princi-
ple, it had not opposed the idea of pan-European action to
limit liability but was skeptical about such an action being
achievable due to signi?cant differences in the existing lia-
bility regimes of Member States (see European
Commission, 2002b). According to the ECG’s notes, a num-
ber of other countries, including Belgium, Denmark, Lux-
embourg and the Netherlands, felt that it was neither
appropriate nor achievable for audit liability reform to be
addressed in the revised Eighth Directive, but still sup-
ported further debate and the undertaking of a European
study on the issue. The UK and Ireland both called for fur-
ther investigation of the impact of existing liability regimes
on the audit profession. Finally, the ECG noted that some
Member States, particularly France, were still strongly
opposed in principle to the idea of liability reform.
Meetings between the ECG and MEPs revealed a gener-
ally more sympathetic response to the large accounting
?rms’ concerns. A German MEP, Wolf Klinz (a Draftsman
for the Eighth Directive), advocated a €25 million cap on lia-
bility as a way to avoid ‘‘a situation where a liability case
could ruin whole ?rms’’ (Chapman, 2004b). Another advo-
cate of liability limitation was a Dutch MEP, Bert Doorn,
who was leading the issue in the JURI Committee
(Chapman, 2004b), and also, acting as a Rapporteur for the
Eighth Directive. In the course of these meetings, the ECG
presented its desired amendment to the Eighth Directive
regarding the issue of auditor liability for consideration by
the European Parliament. The amendment read as follows:
1. The Member States shall ensure that the effect of
prevailing law does not place an unlimited ?nancial lia-
bility burden on statutory auditors and audit ?rms.
2. The Member States may opt to address this by one or a
combination of the following:
(a) require any liability to be allocated between the
responsible parties on a basis proportionate to their
culpability,
(b) permit statutory auditors and audit ?rms to limit
their liability on a contractual basis
(c) limit by law the amount of compensation for ?nan-
cial loss for which statutory auditors and audit ?rms
may be liable.
In July 2005, the ?nal report on the new text of the
revised Eighth Directive (JURI, 2005) was presented by Bert
Doorn to the European Parliament, together with the opin-
ions of the relevant Parliamentary Committees, such as
ECON (European Parliament, 2005a). In this report, the
?nal text of the amendment regarding auditor liability read
as follows:
64 A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72
The Commission shall before the end of 2006 present a
report on the impact of the current national liability
rules for carrying out statutory audits on the European
capital markets and on the insurance conditions for
statutory auditors and audit ?rms, including an analysis
of the limitations of ?nancial liability. The Commission
shall, where appropriate, carry out public consultation.
In the light of that report, the Commission shall, if it
considers it appropriate, submit recommendations to
the Member States.
[(JURI, 2005, p. 47)]
This amendment was notably different from that ini-
tially proposed by the ECG in that it did not contain any
requirement for Member States to limit auditors’ liability.
However, it did mean that the Commission was now stat-
utorily committed to conducting a study on the impact of
the Members States’ liability practices.
Importantly, the JURI Committee’s report also stated
that the ?nal text of the amendment was a result of ‘the
compromise as agreed during the informal trilogue’
[between the European Parliament, the Commission and
the Council of Ministers]. The ECG’s proposed amendment
had failed to achieve a position which could be agreed
upon and shared within the European ‘decision making tri-
angle’. Nevertheless, the fact that the ?nal version of the
amendment referred to the possibility of a recommenda-
tion by the Commission on the subject of liability was evi-
dence of some form of political compromise between
involved parties and an expectation of further policy
debate. Such expectations were duly heightened with the
appointment, in November 2004, of Charlie McCreevy as
the European Commissioner for Internal Market and Ser-
vices (replacing Frits Bolkestein). McCreevy’s personal pro-
fessional experience as a Chartered Accountant in Ireland
arguably contributed to him being more sympathetic to
the large accounting ?rms’ claim that the Member States’
existing liability regimes were unfair. McCreevy asserted,
fairly early on during his period of of?ce, that ‘‘(P)ersonally
I make no secret I have been in favour of having some cap
on auditor liability for as long as I’ve been a Chartered
Accountant’’ (McGinley, 2005).
The revised Eighth Company Law Directive on Statutory
Audits of Annual Accounts and Consolidated Accounts (2006/
43/EC) was of?cially issued in May 2006 (European
Commission, 2006). In response to article 30a of the Direc-
tive, which stated that the Commission should ‘‘present a
report on the impact of the current national liability’’, the
Commission duly appointed a UK consultancy ?rm London
Economics
10
to study the issue. Furthermore, as noted ear-
lier in the paper, the Commission’s standardized approach
to policy formulation has been to encourage various discus-
sion groups to develop a shared view on the policy issues at
hand, and also, to justify resulting policy outcomes
(Andersen & Burns, 1996; Andersen & Eliassen, 1996;
Greenwood, 2007; Nugent, 2001). One example of such
groupings was the European Auditor Liability Forum, set
up by the Commission in 2005 and which continued work-
ing until summer 2006. Involved in the European Auditor
Liability Forum were twenty audit market experts, repre-
senting regulatory agencies, professional accountancy
bodies (ICAEW and FEE), large accounting ?rms (as repre-
sented by the ECG’s Chairman), associations of large busi-
nesses from France and Italy, the insurance industry, the
banking sector, investment organizations, and academia.
In Hilgartner’s (1992) terms, meetings of the Forum
constituted instances of ‘heterogeneous engineering’
whereby participants, through claims of relevant expertise,
became directly involved in the identi?cation and justi?ca-
tion of risks associated with auditor liability. The London
Economics study played a vital role here in that it supplied
new, previously undisclosed data on the consequences of
litigation for the large accounting ?rms – data that was
capable of being used to justify more aggressively the risks
of unlimited liability. Much of the evidence presented by
London Economics was sourced from documentary/litera-
ture reviews as well as surveys of accounting ?rms, client
companies, institutional investors, and other stakeholders
from the EU Member States. The Forum was committed
to understanding ‘‘the background of litigation risks affect-
ing ?rms and networks as a whole’’ (European Forum on
Auditor Liability, 2005, p. 2). This involved the collection
of evidence of the economic impact of auditor liability
and gaining (unprecedented) access to the con?dential
data on the legal claims against accounting ?rms in the
EU and United States, including details of how these cases
had been resolved. The ECG played a key part in facilitating
access to this information. The ?ndings of the London Eco-
nomics study and the con?dential details of litigation
against auditors put the large accounting ?rms, and specif-
ically the ECG, in a powerful position for continuing to
raise the signi?cance of unlimited auditor liability as a risk
object that needed to be brought under control through a
form of regulatory action (Hilgartner, 1992). Strategically
designed to underscore certain types of harms and threats,
the data presented was to lay the ground for the large
accounting ?rms’ further offensive directed at the sceptics
of unlimited liability.
The project report by London Economics (2006) con-
cluded that the market for international audits was highly
concentrated and effectively controlled by the large
accounting ?rms. Such concentration was said to be linked
to a growing gap between the value of legal claims against
auditors and available insurance cover, with smaller
accounting ?rms unable to cover the remaining amount
claimed from their personal wealth. It was also claimed
that unlimited auditor liability combined with only limited
availability of liability insurance posed a serious risk to
auditors, as they were left unprotected against the ‘cata-
strophic’ consequences of growing litigation, including
the increasing likelihood of another large accounting
?rm failure (similar to that of Arthur Andersen), and
10
London Economics is a London-based consultancy ?rm established in
1986 by a British economist John Kay who at the time also held a Chair at
London Business School. Over the years, the ?rm’s clients have included
private and public sector organizations (such as the British government) as
well as independent regulators (e.g. Ofcom, – an independent competition
authority in the UK). London Economics has been involved in carrying out a
wide variety of projects for EU institutions (such as the Commission and the
Parliament) which, apart from its study on auditor liability, have included
topics such as human resource mobility, European e-communications and
European market studies.
A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72 65
endangering the effective functioning of the broader econ-
omy if ‘‘auditors were to decide that auditing is a too risky
activity and therefore shift to other business lines’’
(London Economics, 2006, p. 134)
In concluding, the London Economics report claimed
that limiting auditor liability would tackle the adverse
effects of auditors’ extensive litigation exposure by, inter
alia, reducing concentration in the audit market, helping
to ease staf?ng pressure on accounting ?rms, and ulti-
mately, preventing another major accounting ?rm failure
(London Economics, 2006, p. 177). That said, a ‘one-size-
?t-all’ approach (i.e. the imposition of a single liability
arrangement) was deemed unhelpful in terms of ade-
quately catering for the variety of legal environments and
accounting ?rm characteristics in the Member States (p.
188).
From competing conceptualizations of risk to the
making of a Recommendation
The publication of the London Economics report was
soon followed by the launch, in January 2007, of a public
consultation on the need for a European reform of auditor
liability, including introducing a form of limited liability
(Directorate General for Internal Market & Services,
2007a). The consultation allowed a wide range of transna-
tional interests concerned with the liability issue a further
opportunity to voice their opinions. Analysis of responses
to the consultation (85 in total) (Directorate General for
Internal Market & Services, 2007b) demonstrated, yet
again, signi?cant differences of opinion as to the best
way to approach the liability issue, with such differences
stemming from divergent conceptualizations of risk that
various transnational policy actors attributed to particular
auditor liability arrangements (Hilgartner, 1992). Indeed,
the range of reactions revealed just how the pursuit of con-
trol over the construction of the meaning of risk repre-
sented a continuing struggle with environmental
developments yielding differing opportunities for actors
to in?uence the direction of regulatory debate by emplac-
ing and displacing particular risk objects and rede?ning
linkages between them.
Strong reform proponents, such as the large accounting
?rms, attacked the claim that limited liability would lead
to inferior audit quality. They drew a connection between
the issue of liability limitation and the viability of the audit
market, arguing that public oversight of the audit profes-
sion was a potentially more discriminating tool for enhanc-
ing audit quality than unlimited liability. With respect to
the methods of limitation, the large accounting ?rms unan-
imously supported introducing a liability cap (Directorate
General for Internal Market, 2007b).
However, despite this apparent solidarity of opinion on
the need for auditor liability limitation and a cooperative
tone in previously provided agreed policy positions, differ-
ences did begin to appear in the views of the large account-
ing ?rms. For example, BDO and Grant Thornton,
alternatively described as the two leading ‘mid-tier’ ?rms,
disputed vigorously the position taken by the ‘largest’ (Big
Four) ?rms as to what size of liability cap was most
appropriate. Jeremy Newman, at that time the BDO manag-
ing partner in the UK, publicly argued in a journal inter-
view that the Big Four ?rms would be the main
bene?ciaries of a high liability cap and that the ‘mid-tier’
?rms would be ‘‘crushed by the Big [Four] ?rms’’ (Hawkes,
2008).
Further, the 2007 consultation revealed how opponents
of liability limitation, such as users of audit reports, had
started more aggressively to challenge the conceptualiza-
tions of risk (Hilgartner, 1992) attributed to unlimited
auditor liability constructed by the large accounting ?rms.
Such opposition was designed to undermine the chain of
causal linkages that the accounting ?rms had sought to
establish between unlimited liability regimes and what
the ?rms claimed were the adverse consequences of litiga-
tion such as another accounting ?rm failure. Instead, users
of audit reports rationalized audit failure as something that
was far more strongly related to the loss of reputation that
follows from major exposés of poor audit quality. Repre-
sentatives of the insurance and investment communities,
for example, stood in particularly strong opposition to
the prospect of liability limitation (Directorate General
for Internal Market, 2007b, p. 13). The essence of their con-
cerns was the possibility that a ?xed cap on auditor liabil-
ity would lead to situations where litigants could not be
fully compensated for their damages by auditors and
would, therefore, pursue damages’ claims against directors
and of?cers of the audited company, with a subsequent
pressure on insurance costs. They argued it was far more
important to place emphasis on the pursuit of better audit-
ing standards and corporate governance. The Comité
Européen des Assurances (CEA – the European Insurance
and Reinsurance Federation) stated in its comment letter
that ‘‘the risk of failure of a network, which could lead to
a reduction in the audit offer, is mainly linked to a loss
of reputation [emphasis added in the original document]
and simply limiting the liability for auditors in the EU does
not solve the problems of reputation’’ (CEA, 2007, p. 2).
Also, Peter Montagnon, Director of Investment Affairs at
the Association of British Insurers (ABI), asserted in an arti-
cle in the Financial Times (6 June, 2008) that, while liability
limitation would clearly offer auditors greater protection
against litigation, the bene?ts of this to investors were
somewhat less evident. In its formal response to the
2007 consultation, the ABI stressed that it had ‘‘worked
in conjunction with the CEA to deliver the insurance indus-
try’s key message that a cap will not change the underlying
problem that insurers have no appetite to insure the liabil-
ity of the Big Four auditors, following heavy losses in the
1990s’’.
11
Banking sector regulators highlighted similar concerns
with regards to the validity of assumptions made in the
London Economics report. One of their key worries was
the potential impact of changes in auditor liability arrange-
ments on the roles that external auditors play with regards
to banking regulation and supervision in some jurisdic-
tions, such as with respect to collecting information on
regulated entities and validating their assessments of key
11
Seehttp://old.abi.org.uk/Newsletter/Attachments/19.pdf.
66 A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72
measurements under the requirements issued by the Basel
Committee on Banking Supervision (see Hüpkes (2006) for
more discussion). The then Committee of European Bank-
ing Supervisors (since 2011, the European Banking Author-
ity), for example, questioned the argument that ‘‘capping
auditor liability across the EU will materially lessen the
likelihood of the exit of a Big Four audit ?rm from the audit
market or increase the choice of audit ?rm as no audit ?rm
has so far failed within the EU due to a catastrophic liabil-
ity claim against it’’ (Committee of European Banking
Supervisors, 2007, p. 2).
The above criticisms and other ‘inconvenient’ argu-
ments resulting from the consultation process seemed to
be largely ignored by the Commission’s of?cials, and
instead the ?ndings of the London Economics report (and
the public comments made by proponents of liability lim-
itation during the consultation) were used to justify the
need for liability reform. While some responses had
challenged the report’s arguments, it was still held out as
demonstrating the post-Enron ‘reality’ of the large ?rms’
audit liability exposures. Arguably, of crucial importance
here was the top-level institutional support that the issue
of liability limitation had secured at the Commission. Com-
missioner McCreevy had already publicly con?rmed his
strong preference for limited liability reform well before
the London Economics report was issued and so was
always likely to be supportive of its ?ndings. However,
he used it to revive the causal linkages between the issue
of auditor liability limitation and the concentrated nature
of the audit market that, as was shown earlier in the paper,
had been actively discussed within EU regulatory circles
over a decade earlier (European Commission, 1994). In
responding to the results of the London Economics study
in an address at a FEE Conference in October 2006, McC-
reevy emphasized that ‘‘[the results] underline a concern
I have had for some time: there is an increasing trend for
litigation against auditors, while at the same time interna-
tional audit networks are faced with a lack of available
commercial insurance’’ and that there is a risk that one
of the large accounting ?rms ‘‘might be faced with a claim
that would threaten its existence [. . .] [in which case] cap-
ital markets at large could face very serious consequences’’
(cited in Lambe, 2007).
Such argumentation attempted to de?ne auditor liabil-
ity not just as a risk that mainly threatens the survival of
accounting ?rms but as something arguably more hazard-
ous and signi?cant; something that can harm the economy
as a whole and the functioning of the European single
market. According to Hilgartner (1992), such attempts at
recon?guring the existing causal linkages between risk
and harm are designed to produce a tangible practical
impact, for ‘‘[w]hen new de?nitions of risk objects get
emplaced within the conceptual networks that people
use to think about a [. . .] system, they act on that system’’
[original emphasis added] (p. 50). Effectively, by challeng-
ing or broadening established linkages between risk and
harm, McCreevy and his supporters attempted to trans-
form unlimited auditor liability from ‘a problem of one
profession’ into a systemic risk and a threat to the system
of European values grounded in the ideals of free, fair and
ef?cient economy without borders.
McCreevy’s arguments also drew support from the fact
that a high level of concentration in the audit market had
gained global signi?cance as a policy issue. In September
2006, for example, the then Financial Stability Forum
(now Board) held a meeting in Paris where its members
‘‘expressed concern’’ about the high level of concentration
of audit services for large companies (Financial Stability
Forum, 2006, p. 2).
12
Furthermore, auditor liability and
audit market concentration were among the topics dis-
cussed at a roundtable organized by IOSCO in 2007. The
roundtable (for an of?cial transcript, see IOSCO, 2007)
yielded another opportunity for key participants in the
transnational policy debate on the liability issue to air their
respective views and concerns, although the outcome of the
Roundtable was a press release that avoided making any
strong policy statements or commitments.
13
In McCreevy’s subsequent address to the European Par-
liament’s Committee on Legal Affairs, he positioned audit
concentration and audit liability as key elements in a so-
called ‘audit package’ of policy measures for implementing
the revised Eighth Directive, and also the ?rst priority for
action (European Parliament, 2007). The issue of liability
reform was made less controversial by not discussing lia-
bility limitation in isolation or representing it as a need
in itself, but portraying it as a development that had clear
resulting bene?ts for the audit market and the quality of
auditing services:
I believe that we should make every endeavour to
encourage new entrants into the market for large audits
and to create the conditions for them to invest in build-
ing stronger international networks.
But how can we convince them to make the signi?cant
?nancial commitments needed to expand into the mar-
ket for larger audits, if liability risks are high and insur-
ance cover is not available? We cannot reasonably
promote the objective of greater choice without ?rst
addressing the liability risks facing the audit profession.
[(European Parliament, 2007, pp. 2-3)]
However, McCreevy’s views and his overall package of
reform both still generated challenge among interested
stakeholders and were seen by some as misrepresenting
the way in which discussions on auditor liability had pro-
ceeded. For instance, the International Corporate Gover-
nance Network (ICGN) issued a public letter heavily
criticizing the stance taken by McCreevy and the assump-
tions being made as to the consequent market effects of
auditor liability limitation – stating that limiting auditor
liability was not ‘‘an effective or appropriate way to
12
Also, the Basel Committee on Banking Supervision (2008, p. 9)
subsequently expressed its interest in monitoring developments in the
area of auditor liability in terms of the potential effects of any future policy
changes on audit quality.
13
For instance, with respect to liability, the press release noted: ‘‘The
second panel explored the implications of auditor liability and possibilities
for reform. The panelists focused in part on introducing liability caps for
auditors and whether adherence to transparency and corporate governance
principles by audit ?rms should be a prerequisite to liability reform.
Panelists also discussed the unavailability of insurance for catastrophic
claims and the implications for audit ?rm sustainability’’. See http://
www.iosco.org/news/pdf/IOSCONEWS105.pdf.
A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72 67
increase high-quality audit ?rm choice’’ and that instead
such an action ‘would reduce audit ?rm accountability,
provide a signi?cant market incentive to take audit short-
cuts, and reduce overall audit quality to the detriment of
investors’’ (ICGN, 2007). Certain regulatory groups were
also starting to advocate that the policy reform imperative
needed to shift from a direct emphasis on the need for lia-
bility reform, to a broader prioritization of audit quality
and the multifaceted ways (including liability limitation)
by which audit quality could be improved. For example,
in the UK, a report by the Market Participants Group
(2007), advising the Financial Reporting Council (the coun-
try’s regulator in the area of accounting and auditing)
downplayed auditor liability as a threat to competition
and the need for liability reform, noting that ‘‘n develop-
ing and implementing policy on auditor liability arrange-
ments, regulators and legislators should seek to promote
audit choice, subject to the overriding need to protect audit
quality’’ (p. 9).
McCreevy’s intent was also questioned at the level of
individual Member States, with the continuing spirit of
opposition re?ecting what Halliday and Carruthers
(2009) described as the utilization of the weapons of the
weak; namely, the tactics of reasoned resistance that sup-
posedly ‘weak’ national policymakers use to ‘foil’ the poli-
cies produced by supposedly more powerful transnational
bodies, such as the EU. For example, in highlighting
’’cultural incompatibilities’’ (Halliday & Carruthers, 2009,
p. 344), the French government stressed that the Commis-
sion’s proposals for an EU-wide action to limit auditor lia-
bility contradicted their view of auditing as an inherently
socially oriented function, particularly in the wake of the
corporate scandals of the early 2000s when an auditor
was, ‘‘more than ever, the guarantor of the credibility of
corporate reporting’’ (Des Autorités Françaises, 2007, p. 1
– authors’ translation). They went on to argue that such a
limitation would violate principles of social equality, a
key constitutional right in France. They questioned ?nd-
ings of the London Economics report, arguing that the risk
of disappearance of another large accounting ?rm network
as a result of litigation was not supported by any convinc-
ing evidence, hinting that most legal cases were routinely
resolved in (signi?cantly smaller than the original claims)
out-of-court settlements. They also treated with scepti-
cism the argument that limited liability could tackle the
problem of audit market concentration, stating that caps
on liability would bene?t mainly the larger ?rms, hence
pushing the smaller auditors even further away from
auditing large clients.
The French government’s stance on the auditor liability
issue was shared by other key stakeholder groups in the
country. Speci?cally, while the French audit profession
was in favour of liability limitation (arguing, in the words
of Valerie Macaud, head of audit at Grant Thornton France,
that the London Economics report showed that ‘‘there [. . .]
[was] no evidence that unlimited liability promotes audit
quality’’ – see The Accountant, 28.02.2007), other stake-
holders, such as French banks and the Mouvement des
Entreprises de France, an industry group that represents
French companies, were strongly opposed to auditor liabil-
ity reform (see The The Accountant, 28.02.2007;
Directorate General for Internal Market, 2007b). In
Hilgartner’s (1992) terms of analysis, such competing
arguments portray France as an environment where the
risk associated with auditor liability (and any related
reform) is conceptualized in terms of the social harms of
audit failure and the consequent need to protect ‘injured’
parties.
14
In June 2008, the Commission issued its formal Recom-
mendation, entitled ‘‘The Recommendation Concerning the
Limitation of the Civil Liability of Statutory Auditors and Audit
Firms’’ (2008/473/EC). It duly classi?ed unlimited liability
as a serious impediment to audit market competition and
the smooth functioning of capital markets, noting that
‘‘increasing volatility in market capitalisation of companies
[. . .] [had] led to much higher liability risks, whilst access
to insurance coverage against the risks associated with
[. . .] audits [. . .] [had] become increasingly limited’’
(European Commission, 2008a, p. 1). The Recommenda-
tion, however, did not impose any binding restrictions
upon the Member States to change their current position
but only suggested that auditor liability ‘‘be limited except
in cases of intentional breach of duties by the statutory
auditor or the audit ?rm’’ (European Commission, 2008a,
p. 1) by one of three methods: a cap on liability, propor-
tionate liability, or limitation by contract (between the cli-
ent and an auditor). Hence, the Recommendation did little
to address the problem of diversity of auditor liability
regimes across Europe, the aim that had been a primary
motive for its initial interest in the auditor liability issue.
It has been said that ‘‘the most forgiving rules are often
on the most controversial topics’’ (Halliday & Carruthers,
2009, p. 411) and the dif?culties of ?nding a shared policy
position on a pan-European auditor liability arrangement
ultimately led the Commission to produce a non-binding
Recommendation offering multiple implementation
options rather than any binding Directive.
15
Conclusions
This paper’s analysis of the determination of EU policy
on the subject of auditor liability limitation has demon-
strated how the large accounting ?rms’ efforts to mobilize
pertinent EU governance institutions in their pursuit of
change in Member States’ auditor liability arrangements
failed to produce changes in governance outcomes that
the ?rms had strived for. Instead of a binding policy that
14
Such a perception of risk did not only underlie the French authorities’
speci?c position on the Commission’s proposals but, more broadly, also
re?ected the general nature of the country’s legal treatment of auditor
liability as a policy issue. France did introduce the principle of proportion-
ate liability in the 1966 Companies Act (‘Loi sur les Societes Commercials
no. 66-537’). However, while stating that auditors can be held liable only
for their own fault and not that of management, the Act also explicitly
provided for the auditor’s duty of care to third parties. The fact that such
liability arrangements were de?ned in statute and not, for example, in
contract law may be taken as testimony to the public policy orientation of
auditing in France (Thieffry & Associates, 2001).
15
In particular, the strong opposition from countries, such as France,
meant that a ‘one-size-?ts-all’ approach to the auditor liability dilemma
would have been unlikely to receive the required approval (by individual
Member States voting) from the Council of Ministers, the EU’s principal
legislator.
68 A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72
would mandate a form of auditor liability limitation across
Europe, the ?rms’ lobbying efforts only managed to secure
a Recommendation that imposed no exacting obligations
for action on the part of EU Member States. In viewing
the pursuit of EU-wide auditor liability reform through
Hilgartner’s (1992) analytical prism of a ‘risk object’, the
paper has demonstrated how different interest representa-
tions constructed and levied competing views regarding
proposed regulatory solutions, which ultimately did much
to frustrate the accounting ?rms’ strategic intentions
regarding EU-wide liability limitation. In terms of any pos-
sible resolution of the debate, the European Commission’s
proposals to limit auditor liability proved capable of being
simultaneously linked to different types of risks
(Hilgartner, 1992). Accordingly, while the large accounting
?rms linked unlimited auditor liability with increased liti-
gation against auditors, prospective major accounting ?rm
failures and increased audit market concentration, oppo-
nents of auditor liability limitation were, in contrast,
stressing the adverse effects of limited auditor liability on
auditor independence and the quality of audits. Likewise,
we have also seen how particular harms, such as the
demise of a major accounting ?rm, were capable of being
used by different interest groups to justify diametrically
opposite policy positions – for example, with large
accounting ?rms stressing the dangers of excessive liability
exposure and users of audit reports reminding us of the
importance of addressing the diminishing public trust in
the quality of auditors’ work. Such risk construction pro-
cesses (and related arrays of rhetorical associations
designed to emplace/displace particular risks in the
conceptual framing of European policy making on auditor
liability limitation) prevented the establishment of any
strong consensus as to an appropriate policy solution. In
turn, these processes provide a vivid endorsement of
Power’s (1998) claim that ‘‘the question of auditor liability
would never be decisively solved, that pressures always
exist to push the auditor in new directions, that auditors
are constantly tempted to create expectations of what they
can achieve, that new legal provisions are almost immedi-
ately out of date and some subject to pressures for reform
and that classes of potential litigants can be created over-
night just as others can disappear’’ (p. 79).
It is also important to emphasize that such risk con-
struction processes remain subject to temporal in?uences,
wherein signi?cant environmental developments and
shifts in actor constellations can serve to create, reinforce
or downplay the risks associated with particular policy
agendas. Notably, in this regard, the aftermath of the
2007/08 ?nancial crisis and the change in the top echelons
of the EU’s political establishment (with the appointment
of Commissioner Barnier in place of his predecessor
McCreevy, a vocal advocate of audit liability limitation)
saw the pursuit of auditor liability limitation lose much
regulatory momentum. The Commission’s Green Paper on
audit policy (European Commission, 2010) made no refer-
ence to the limitation of auditor liability and subsequent
reform proposals (European Commission, 2011) even
referred to the need to ‘‘increase the con?dence in and
the liability of the statutory auditors’’ (European
Commission, 2011, p. 17).
Beyond the speci?cs of auditor liability limitation, the
paper’s analysis allows for the drawing of broader conclu-
sions regarding the dynamics of modern regulatory gover-
nance systems. First, we have shown the involvement of
private professional interests, particularly large accounting
?rms, in EU governance processes to be both substantial
and active on a number of governance layers (including
the European Commission, Parliament, and Council) and
mechanisms (e.g. public consultation, committee member-
ship, meetings with the representatives of individual
Member States, direct engagement with the preparation
of of?cially commissioned reports, direct lobbying and
behind-the-scenes interactions). However, the paper
emphasizes the potential dangers of treating such transna-
tional policy engagement as something that automatically
translates into an ability to dominate policy prescription
and outcomes. Recent years have certainly witnessed the
increasing prominence of studies of international account-
ing ?rms and accompanying claims as to their substantive
status and in?uence in transnational governance (Barrett
et al., 2005; Malsch & Gendron, 2011; Suddaby et al.,
2007). Our ?ndings, however, serve to question the ?rms’
scale of in?uence or at least impact on the determination
of EU policy with respect to auditor liability limitation.
With Fogarty and Rigsby (2010) generating similar results
when highlighting the incapacity of the international
accounting ?rms to secure regulatory support for desired
innovations in audit practice, it is important not to assume
that the interests of the large accounting ?rms are an invi-
olable force in the evolving transnational governance ?eld.
Moreover, such ?ndings also highlight the importance of
extending perspectives on the strategic policy endeavours
of the accounting profession and its large ?rms so as to
more fully capture how such endeavours are conditioned
‘‘by multiple actors, agendas, and strategies of in?uence’’
where ?rms are but one type of force with signi?cant
capacity to shift regulatory imperatives (Samsonova-
Taddei & Humphrey, 2014, p. 907).
Secondly, while con?rming prior accounts of the rise of
transnational regulation and the market demand for global
policy solutions (Arnold, 2005, 2012; Büthe & Mattli, 2011;
Cooper & Robson, 2006; Malsch & Gendron, 2011; Suddaby
et al., 2007), the paper provides a timely reminder of the
importance of not treating the transnational regulatory
arena as it if it were a ‘‘single world stage’’ (Halliday &
Carruthers, 2009, p. 6). Agendas of local implementation,
and the possibilities as to what can and cannot be imple-
mented at the national level, shape the core of what legis-
lative and regulatory proposals the EU is willing to adopt in
the ?rst place. In this regard, our analysis reinforces prior
accounts of the EU policy arena arguing that ‘‘[d]espite
the independent in?uence of both EU institutions and
sub- and trans-national actors, as well as the extensive
transfer of competencies to supranational actors, sover-
eignty to date has not withered away to make way for a
European sovereign state, nor for the disappearance of sov-
ereign Member States’’ (Aalberts, 2004, p. 41). The substan-
tial authority of the national political arenas is not unique
to EU policy making but, increasingly, is part of a general
trend towards the ‘repoliticalization’ (Bengtsson, 2011) of
accounting regulation and the rebalancing of regulatory
A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72 69
power in the wake of the global ?nancial crisis where polit-
ical bureaucrats look to be re-gaining considerable in?u-
ence at the expense of other, such as private professional,
actors.
Finally, such observations and inferences about the nat-
ure of European (transnational) audit policy arena provide
an inviting basis from which to re?ne extant scholarly
approaches towards the study of accounting/auditing reg-
ulation. Speci?cally, they highlight the importance of
research approaches that are capable of demonstrating
and revealing empirically the complexity and multi-direc-
tional nature of the interactions between transnational
policy stakeholders that constitute transnational gover-
nance processes in action. Methodologically, it places an
emphasis on taking longer-term, longitudinal perspectives
when studying and evaluating the development and
associated consequences of (transnational) regulatory gov-
ernance reforms. Understandings of the origin, meaning
and consequences of regulatory initiatives and events can
be enhanced by giving greater recognition to the cyclical
nature of (accounting/auditing) regulation and the ways
by which past policy outcomes feed into contemporary
reform agendas (Humphrey, Moizer, & Turley, 1992). Fur-
thermore, with a growing trend towards academic analysis
of regulatory impact (Samsonova & Turley, 2012), it is
important that research is not con?ned to testing the
empirical ‘validity’ of new regulations and standards but
is fully capable and committed to studying the social and
political dimensions of regulatory reform (Humphrey,
2008) – exploring the processes by which regulation is pro-
duced and the ‘individual voices’ and contextually rooted
sentiments that shape regulatory agendas. Cooper and
Robson (2006), in this regard, pointed to the value of
studying accounting regulation ‘in a comparative manner’,
urging us to consider ‘how the speci?c location might
affect regulatory outcomes’ (p. 428–29), including
enhanced scrutiny of the in?uence of local political and
social contexts and cross-national differences on global
regulatory reform (also see Canning & O’Dwyer, 2013;
Caramanis, Dedoulis, & Levebtis, 2010; Jeppesen & Loft,
2011; Malsch & Gendron, 2011). In this vein, it is important
to study the development of international norm systems
not as linear trajectories but rather as recursive processes
wherein local policy-making experiences are visibly recog-
nized as shaping the outputs of transnational policy mak-
ing (Halliday & Carruthers, 2009, p. 409). We need to
appreciate such outputs as products of contingent negotia-
tion between national policy makers and institutions of
transnational governance. In turn, this may well allow us
to learn more of the relative regard held for regulated pro-
fession services, such as auditing, and the presumptions
that govern assessments of auditor performance and
expectations held for the function itself.
Acknowledgements
We would like to thank Stella Kokkali whose student
dissertation project became a starting point for this paper.
We also gratefully acknowledge the helpful comments on
the earlier drafts of this paper from two anonymous
reviewers, Mary Canning, Marie-Laure Djelic, Paul André,
Charles Cho, Jeremy Jennings, Anne Cazavan-Jeny, Andrei
Filip, Karel Van Hulle, Robert Knechel, David Gwilliam,
Cedric Lesage, Anne Loft, Martin Manuzi, Stephen Nye,
Brendan O’Dwyer, Reiner Quick, Chrystelle Richard, Steven
Walker and Peter Wyman, together with participants of
the 5th European Auditing Research Network Symposium,
the 6th Asia Paci?c Interdisciplinary Research in Account-
ing (APIRA) Conference, and research seminars at ESSEC
(Paris) and Exeter (UK) Business Schools.
References
Aalberts, T. (2004). The future of sovereignty in multilevel governance
Europe. Journal of Common Market Studies, 42(1), 23–46.
Accountancy Age (1996). Welcome for paper with no answers, 22 August
1996.
Accountant (2007). Country survey – France: French institutes build
relationships; 28.02.2007.
Andersen, S. S., & Burns, T. (1996). The European Union and the Erosion of
Parliamentary Democracy: A study of post-parliamentary
governance. In S. S. Andersen & K. A. Eliassen (Eds.), The European
Union: How Democratic is it? (pp 217–226). London: Sage Publications.
Andersen, S. S., & Eliassen, K. A. (1996). EU-lobbying: Between
representativity and effectiveness. In S. S. Andersen & K. A. Eliassen
(Eds.), The European Union: How Democratic is it? (pp 41–56). London:
Sage Publications.
Arnold, P. (2005). Disciplining domestic regulation: The World Trade
Organization and the market for professional services. Accounting,
Organizations and Society, 30, 299–330.
Arnold, P. (2009). Global ?nancial crisis: The challenge to accounting
research. Accounting, Organizations and Society, 34(6–7), 803–809.
Arnold, P. (2012). The political economy of ?nancial harmonization: The
East Asian ?nancial crisis and the rise of international accounting
standards. Accounting, Organizations and Society, 37, 361–381.
Arnold, P. J., & Sikka, P. (2001). Globalization and the state-profession
relationship: The case of the Bank of Credit and Commerce
International. Accounting, Organizations and Society, 26, 475–499.
Arthur Andersen & Co. Coopers & Lybrand Deloitte & Touche Ernst &
Young & KPMG Peat Marwick & Price Waterhouse (1992). The liability
crisis in the United States: Impact on the accounting profession.
Journal of Accountancy, 174(5), 19–23.
Barrett, M., Cooper, D. J., & Jamal, K. (2005). Globalization and the
coordinating of work in multinational audits. Accounting,
Organizations and Society, 3(1), 1–24.
Basel Committee on Banking Supervision (2008). External audit quality
and banking supervision. December 2008. Basel Committee on Banking
Supervision: Basel, Switzerland.
Bengtsson, E. (2011). Repoliticalization of accounting standard setting –
The IASB, the EU and the global ?nancial crisis. Critical Perspectives on
Accounting, 22, 567–580.
Bolkestein, F. (2003). Auditor liability: An EU perspective. Address at a
conference by Beachcroft Wansbroughs at the London Underwriting
Centre, London, 24th Match, 2003.
Botzem, S. (2012). The politics of accounting regulation: Organizing
transnational standard setting in ?nancial reporting. Cheltenham:
Edward Elgar Publishing Limited.
Buijink, W., Maijoor, St., Meuwissen, R., & Van Witteloostuijn, A., (1996).
The Role, Position and Liability of the Statutory Auditor within the
European Union. A Report by the Maastricht Accounting, Auditing &
Information Management Research Center (MARC). Luxembourg:
Of?ce for Of?cial Publications of the European Communities.
.
Büthe, T., & Mattli, W. (2011). The new global rulers: The privatization of
regulation in the world economy. New Jersey: Princeton University
Press.
Canning, M., & O’Dwyer, B. (2013). The dynamics of a regulatory space
realignment: Strategic responses in a local context. Accounting,
Organizations and Society, 38(3), 169–194.
Caramanis, C., Dedoulis, E., & Levebtis, S. (2010). The establishment of EU-
inspired ‘independent’ oversight boards: Local constraints and the
elusive feat of Europeanization in Greece. Paper presented at the
European Accounting Association Annual Congress, Istanbul, April.
CEA (2007). CEA response to the EC consultation on auditors’ liability and its
impact on the European capital markets. 15 March 2007. CEA: Brussels.
70 A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72
.
Chapman, P. (2004a). Audit giants press MEPs for ?nancial liability cap.
European Voice. 23.09.2004. .
Chapman, P. (2004b). MEPs join auditors’ campaign for ?nancial liability
lifeline. European Voice. 25.11.2004. .
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.
Coen, D. (Ed.). (2007). EU lobbying: Empirical and theoretical studies.
London: Routledge.
Coen, D., & Richardson, J. (Eds.). (2009). Lobbying the European Union:
Institutions, actors and issues. Oxford: Oxford University Press.
Committee of European Banking Supervisors (2007). Commission Staff
Working Paper: Consultation on Auditors’ Liability and its Impact on the
European Capital Markets. 15th March 2007. London: CEBS.
Cooper, D., & Robson, K. (2006). Accounting, professions and regulation:
Locating the sites of professionalisation. Accounting, Organizations and
Society, 31(6), 415–444.
Des Autorités Françaises (2007). Réponse des Autorités Françaises à la
consultation de la Commission européenne sur la responsabilité civile
des contrôleurs légaux des comptes et ses impacts sur les marchés de
capitaux européens. [Response of the French Authorities to the
European Commission’s Consultation on Civil Liability of Statutory
Auditors and its Impact on the European Capital Market].
Dewing, I. P., & Russell, P. (2002). Regulation of statutory audit in the
European Union: New developments. Journal of Financial Regulation
and Compliance, 10(1), 68–78.
Dewing, I. P., & Russell, P. (2008). Financial integration in the EU: The ?rst
phase of EU endorsement of international accounting standards.
Journal of Common Market Studies, 46(2), 243–264.
Directorate General for Internal Market and Services (2006). The legal
systems of civil liability of statutory auditors in the European Union.
Update of the study carried out on behalf of the Commission by Thieffry &
Associates in 2001. Brussels: European Commission.
Directorate General for Internal Market and Services (2007a). Commission
Staff Working Paper: Consultation on Auditors’ Liability and its Impact on
the European Capital Markets. Brussels: European Commission.
Directorate General for Internal Market and Services (2007b). Consultation
on Auditors’ Liability: Summary Report. Brussels: European
Commission.
Djelic, M.-L., & Sahlin-Andersson, K. (2006). Introduction: A world of
governance: The rise of transnational regulation. In M.-L. Djelic & K.
Sahlin-Andersson (Eds.), Transnational governance: Institutional
dynamics of regulation (pp. 1–30). Cambridge: Cambridge University
Press.
Djelic, M.-L., & Sahlin, K. (2010). Governance and its transnational
dynamics: Towards a reordering of our world? In C. S. Chapman, D.
J. Cooper, & P. Miller (Eds.), Accounting, organizations, and institutions:
Essays in honour of Anthony Hopwood (pp. 175–204). Oxford: Oxford
University Press.
Eberlein, B., & Grande, E. (2005). Beyond delegation: Translational
regulatory regimes and the EU regulatory state. Journal of European
Public Policy, 12(1), 89–112.
European Commission (1994). Making Europe More Competitive. The Role
of the Accountancy Profession. Speech by Mr John F. Mogg at FEE General
Assembly. 14 December 1994. Brussels: European Commission.
European Commission (1996a). The Role, the Position and the Liability of the
Statutory Auditor within the European Union. Green Paper. Brussels:
European Commission.
European Commission (1996b). Act on the Conference on the Position and
the Liability of the Statutory Auditor within the European Union.
Brussels: European Commission.
European Commission (1998). Communication from the Commission on the
Statutory Audit in the European Union: The Way Forward. Brussels:
European Commission.
European Commission (2001). International Accounting Standards:
Mandatory for listed companies by 2005. Single Market News. March.
Brussels: European Commission. .
European Commission (2002a). A First EU response to Enron Related Policy
Issues. Brussels: European Commission.
European Commission (2002b). Record of the Meeting held on 6th and 7th
June 2002 in Helsinki. 22 October 2002. Brussels: European
Commission.
European Commission (2003). Reinforcing the Statutory Audit in the EU.
Brussels: European Commission.
European Commission (2004). International accounting norms: Background
and recent developments in EU. Brussels: European Commission.
European Commission (2006). Statutory Audits of Annual Accounts and
Consolidated Accounts. Brussels: European Commission. http://
europa.eu/scadplus/leg/en/lvb/l26001.htm.
European Commission (2008a). 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.
European Commission (2008b). Impact Assessment, Accompanying
Document to the Commission Recommendation Concerning the
Limitation of the Civil Liability of Statutory Auditors and Audit Firms.
Brussels: European Commission.
European Commission (2010). Audit policy: Lessons from the crisis. Green
Paper. Brussels: European Commission.
European Commission (2011). Proposal for a regulation of the European
parliament and of the Council on speci?c requirements regarding
statutory audit of public-interest entities. Brussels: European
Commission.
European Contact Group (1996). Respondonding to Market Expectations. An
Action Plan to Reduce the Expectation Gap. July 1996. Brussels:
European Contact Group.
European Forum on Auditor Liability (2005). Summary of the Meeting of 13
December 2005. MARKT/F4/AFM D(2005). Brussels: European
Commission.
European Parliament (2005). On Directive of the European Parliament and
the Council of Statutory Audit of Annual Accounts and Consolidated
Accounts and Amending Council Directives 78/660/EEC and 83/349/EEC.
Proposal for a Directive by Bert Doorn. 11 February 2005. Brussels:
European Parliament.
European Parliament (2007). Mr. McCreevy Presents Statutory Audit
Package. JURI Committee, 19 December 2007. Brussels: European
Parliament.
Faulconbridge, J. R., & Muzio, D. (2011). The rescaling of the professions:
Towards a transnational sociology of the professions. International
Sociology, 27(1), 109–125.
FEE (1992). The Image and Future of the Auditing Profession in Europe.
Brussels: Fédération des Experts-Comptables Européens (FEE).
FEE (1996). The Role Position and Liability of the Statutory Auditor in the
European Union. Brussels: Fédération des Experts-Comptables
Européens (FEE).
FEE (2004). FEE Position on the Proposed Audit Directive. 17 November
2004. Fédération des Experts-Comptables Européens (FEE): Brussels.
Financial Stability Forum (2006). Financial Stability Forum meets in Paris.
Press release. 6 September 2006. Financial Stability Forum: Paris.
Fogarty, T., & Rigsby, J. (2010). A re?ective analysis of the ‘‘new audit’’ and
the public interest: The revolutionary innovation that never came.
Journal of Accounting & Organizational Change, 6(3), 300–329.
Gietzmann, M. B., & Quick, R. (1998). Capping auditor liability: The
German experience. Accounting, Organizations and Society, 23(1),
81–103.
Greenwood, J. (2007). Interest Representation in the European Union (2nd
ed.). New York: Palgrave Macmillan.
Gwilliam, D. R. (2004). Auditor liability: Law and myth. Professional
Negligence, 20(3), 172–181.
Haller, A. (2002). Financial accounting developments in the European
Union: Past events and future prospects. European Accounting Review,
11(1), 153–190. 1468–4497.
Halliday, T., & Carruthers, B. (2007). The Recursivity of Law: Global Norm-
making and National Lawmaking in the Globalization of Corporate
Insolvency Regimes. American Journal of Sociology, 112(4), 1135–1202.
Halliday, T., & Carruthers, B. (2009). Bankrupt: Global lawmaking and
systemic ?nancial crisis. Stanford: Stanford University Press.
Hilgartner, S. (1992). The social construction of risk objects. In J. F. Short &
L. Clarke (Eds.), Organizations, uncertainties and risk. Boulder, San
Francisco, Oxford: Westview Press.
Hofmann, J. (2010). Before the sky falls down: A ‘constitutional dialogue’
over the depletion of internet addresses. In B. M. Hutter (Ed.),
Anticipating risks and organising risk regulation. Cambridge, UK:
Cambridge University Press.
Humphrey, C. (2008). Auditing research: A review across the disciplinary
divide. Accounting, Auditing and Accountability Journal, 21(2),
170–203.
A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72 71
Humphrey, C., & Loft, A. (2011). Moving beyond nuts and bolts: The
complexities of governing a global profession through international
standards. In S. Ponte, P. Gibbon, & J. Vestergaard (Eds.), Governing
through standards: Origins, drivers, limitations (pp. 102–129).
Basingstoke: Palgrave MacMillian.
Humphrey, C., Loft, A., & Woods, M. (2009). The global audit profession
and the international ?nancial architecture: Understanding
regulatory relationships at a time of ?nancial crisis. Accounting,
Organizations and Society, 34(6–7), 810–825.
Humphrey, C., Moizer, P., & Turley, S. (1992). The audit expectations gap –
plus Ça Change, Plus C’est La Même Chose? Critical Perspectives on
Accounting, 3(2), 137–161.
Hutter, B. (2010). Anticipating risk and organizing risk regulation: Current
dilemmas. In B. M. Hutter (Ed.), Anticipating risks and organising risk
regulation. Cambridge, UK: Cambridge University Press.
Hüpkes, E. (2006). The external auditor and the bank supervision:
‘Sherlock Holmes and Doctor Watson?’. Journal of Banking
Regulation, 7, 145–159.
ICGN (2007). Letter to Charlie McCreevy, European Commissioner Internal
Market and Services re the statutory audit measures proposed in a speech
on December 19, 2007. .
IFAC (1995). Auditor’s legal liability in the global marketplace: A case for
limitation. New York: International Federation of Accountants.
Jennings, J. (2010). Life for auditors in the Balkan Area. Presentation at the
World Bank meeting, Brussels, October.
Jeppesen, K. K., & Loft, A. (2011). Regulating audit in Europe: The case of
the implementation of the EU Eighth Directive in Denmark 1984–
2006. European Accounting Review, 20(2), 321–354.
JURI (2005). Report on the Proposal for a Directive of the European
Parliament and of the Council on Statutory Audit of Annual Accounts
and Consolidated Accounts and Amending Council Directives 78/660/EEC
and 83/349/EEC. 1st July 2005. JURI: Brussels.
Kelly, J. (1996). The Big Eight’s vision for the future of auditing in the
European single market. Financial Times, 28 November 1996.
Lahusen, C. (2002). Commercial consultancies in the European Union: The
shape and structure of professional interest intermediation. Journal of
European Public Policy, 9(5), 695–714.
Lambe, A. (2007). Auditor liability – Minister’s referral to CLRG is timely.
Accountancy Ireland, 39(1), 34–35.
Lochner, P. R. J. (1993). Accountants’ legal liability: A crisis that must be
addressed. Accounting Horizons, 7, 92–96.
Loft, A., Humphrey, C., & Turley, S. (2006). In pursuit of global regulation:
Changing governance structures at the International Federation of
Accountants (IFAC). Accounting, Auditing and Accountability Journal,
19(3), 428–451.
London Economics (2006). Study on the economic impact of auditors’
liability regimes. Brussels: European Commission.
Lupton, D. (1999). Risk. London and New York: Routledge.
Maijoor, S., Buijink, W., Meuwissen, R., & Witteloostuijn, A. V. (1998).
Towards the establishment of an internal market for audit services
within the European Union. European Accounting Review, 7(4),
655–673.
Malsch, B., & Gendron, Y. (2011). Reining in auditors: On the dynamics of
power surrounding an ‘‘innovation’’ in the regulatory space.
Accounting, Organizations and Society, 36, 456–476.
Manardo, J. (1996). Challenges for large audit Wrms in the European single
market. Speech given to the Green Paper Conference on the Statutory
Auditor, December.
Market Participants Group (2007). Choice in the UK audit market. Final
report of the Market Participants Group. London: Financial Reporting
Council, UK.
McGinley, C. (2005). On Auditor Liability and other Issues for the Profession.
Accountancy Ireland. December. .
Napier, C. (1998). Intersections of law and accountancy: Unlimited
auditor liability in the United Kingdom. Accounting, Organizations
and Society, 23(1), 105–128.
Neu, D., Ocampo Gomez, E., Graham, C., & Heincke, M. (2006). ‘Informing’
technologies and the World Bank. Accounting, Organizations and
Society, 31(7), 635–662.
Nölke, A. (2003). The relevance of transnational policy networks: Some
examples from the European Commission and the Bretton Woods
institutions. Journal of International Relations and Development, 6(3),
276–298.
Nugent, N. (2001). The European Commission. New York: Palgrave.
Ojo, M. (2009). Limiting audit ?rms’ liability: A step in the right direction?
(Proposals for a new audit liability regime in Europe revisited). Center for
European Law and Politics, University of Bremen, MPRA Paper No.
14878, April. .
Peterson, J. (1995). Decision-making in the European Union: Towards a
framework for analysis. Journal of European Public Policy, 2(1), 69–93.
Porter, B., Simon, J., & Hatherly, D. (2008). Principles of external auditing
(3rd ed.). Chichester, England: John Wiley & Sons Ltd.
Power, M. (1998). Auditor Liability in context. Accounting, Organizations
and Society, 23(1), 77–79.
Radaelli, C. M. (1999). The public policy of the European Union: Whither
politics of expertise? Journal of European Public Policy, 6(5), 757–774.
Risse-Kappen, T. (1995). Bringing transnational relations back. In Non-
state Actors, Domestic Structures and International Institutions.
Cambridge: Cambridge University Press.
Richardson, A. (2009). Regulatory networks for accounting and auditing
standards: A social network of Canadian and international standard-
setting. Accounting, Organizations and Society, 34, 571–588.
Samsonova, A., & Turley, S. (2012). Regulatory impact assessment in the
context pf independent regulation of accounting and auditing in the UK. A
paper presented at the Interdisciplinary Perspectives on Accounting
Conference, Cardiff, UK.
Samsonova-Taddei, A., & Humphrey, C. (2014). Transnationalism and the
transforming roles of professional accountancy bodies: Towards a
research agenda. Accounting, Auditing and Accountability Journal, 27(6),
903–932.
Shapiro, B., & Matson, D. (2008). Strategies of resistance to internal
control regulation. Accounting, Organizations and Society, 33(2–3),
199–228.
Sikka, P. (2008). Globalization and its discontents: Accounting ?rms but
limited liability partnership legislation in Jersey. Accounting, Auditing
and Accountability Journal, 21(3), 398–426.
Sikka, P. (2009). Financial crisis and the silence of the auditors. Accounting,
Organizations and Society, 34(6/7), 868–873.
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.
Slaughter & May (2013). Introduction to the legislative processes for
European Union directives and regulations on ?nancial services
matters. London: Slaughter and May.
Spence, D. (1993). The role of the national civil service in European
lobbying: The British case. In S. Mazey & J. Richardson (Eds.), Lobbying
in the European Union (pp. 47–73). Oxford: Oxford University Press.
Suddaby, R., Cooper, D., & Greenwood, R. (2007). Transnational regulation
of professional services: Governance dynamics of ?eld level
organizational change. Accounting, Organizations and Society, 32(4/5),
333–362.
Talley, E. L. (2006). Cataclysmic liability risk among Big 4 auditors.
Columbia Law Review, 106(7), 1641–1697.
Thieffry & Associates (2001). A study on systems of civil liability of statutory
auditors in the context of a single market for auditing services in the
European Union. Brussels: European Commission.
Thornburg, S., & Roberts, R. (2008). Money, politics, and the regulation of
public accounting services: Evidence from the Sarbanes-Oxley Act of
2002. Accounting, Organizations and Society, 33(2–3), 229–248.
Turley, S. (2008). Developments in the framework of auditing regulation
in the United Kingdom. In R. Quick, S. Turley, & M. Wilekens (Eds.),
Auditing, trust and governance: Developing regulation in Europe
(pp. 205–222). London: Routledge.
72 A. Samsonova-Taddei, C. Humphrey / Accounting, Organizations and Society 41 (2015) 55–72
doc_302217825.pdf