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http://ssrn.com/abstract=1293244
 
 

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Auditor's Liability and its Impact on the European Financial Markets


Walter Doralt


Max Planck Institute for Comparative and International Private Law

Alexander Hellgardt


Max Planck Institute for Tax Law and Public Finance

Klaus J. Hopt


Max Planck Institute for Comparative and International Private Law; European Corporate Governance Institute (ECGI)

Patrick C. Leyens


University of Hamburg - Institute of Law and Economics, Faculty of Law; Max Planck Institute for Comparative and International Private Law

Markus Roth


University of Marburg - Faculty of Law

Reinhard Zimmermann


Max Planck Institute for Comparative and International Private Law

March 1, 2008

Cambridge Law Journal, Vol. 67, No. 1, pp. 62-68, 2008

Abstract:     
Statutory auditors serve as an integral device to safeguard confidence in European financial markets. The market for corporate auditing is highly concentrated. A collapse of one of the top four auditing firms could cause a severe lack in the availability of auditing services. In a 2007 Staff Working Paper the European Commission proposed to reform auditor liability and to protect auditing firms from catastrophic liability claims. This paper analyses the reform options suggested by the European Commission and pleads, in essence, for the following liability rules:

1. The company and its auditor may enter into an agreement limiting the amount of liability of the auditor in respect of any negligence occurring in the course of the audit, subject to approval by the general meeting of the audited company.

2. This limitation may not be set below a fair and reasonable amount. The definition of fair and reasonable should be laid down in a European framework, providing a set of basic criteria, including the sum of fees paid to the auditor and the size of the company.

3. If the amount of liability significantly deviates from what would be fair and reasonable, the court which decides on a damage claim against the auditor declares the agreement void.

4. In the assessment of the validity of the agreement, the court shall take into account the European framework basic criteria to be considered by the parties and additional factors such as auditor independence and the applicability of institutional and individual insurance excesses.

Number of Pages in PDF File: 7

Keywords: auditor liability, liability cap, general meeting, auditor independence

JEL Classification: M49, K13, K22, K23

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Date posted: November 2, 2008  

Suggested Citation

Doralt, Walter and Hellgardt, Alexander and Hopt, Klaus J. and Leyens, Patrick C. and Roth, Markus and Zimmermann, Reinhard, Auditor's Liability and its Impact on the European Financial Markets (March 1, 2008). Cambridge Law Journal, Vol. 67, No. 1, pp. 62-68, 2008. Available at SSRN: http://ssrn.com/abstract=1293244

Contact Information

Walter Doralt
Max Planck Institute for Comparative and International Private Law ( email )
Mittelweg 187
Hamburg, D-20148
Germany
HOME PAGE: http://www.mpipriv.de/ww/en/pub/staff/doralt_walter.cfm
Alexander Hellgardt
Max Planck Institute for Tax Law and Public Finance ( email )
Marstallplatz 1
Munich, 80539
Germany
+49-89-24246-5347 (Phone)
+49-89-24246-523 (Fax)
HOME PAGE: http://www.tax.mpg.de/people.cfm?id=alexander_hellgardt.en
Klaus J. Hopt
Max Planck Institute for Comparative and International Private Law ( email )
Mittelweg 187
D-20148 Hamburg
Germany
+49 40 41 90 02 05 (Phone)
+49 40 41 90 03 02 (Fax)
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Patrick C. Leyens (Contact Author)
University of Hamburg - Institute of Law and Economics, Faculty of Law ( email )
Rothenbaumchaussee 36
D-20148 Hamburg
Germany
HOME PAGE: http://www.ile-hamburg.de/
Max Planck Institute for Comparative and International Private Law ( email )
Mittelweg 187
D-20148 Hamburg
Germany
HOME PAGE: http://www.mpipriv.de/ww/en/pub/home.cfm
Markus Roth
University of Marburg - Faculty of Law ( email )
Universitaetsstr 6
Universitätsstraße 6
Marburg, D-35037
Germany
Reinhard Zimmermann
Max Planck Institute for Comparative and International Private Law ( email )
Mittelweg 187
Hamburg, 20148
Germany
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