Johannesburg - Bernard Agulhas, chief executive of the Independent Regulatory Board for Auditors (IRBA), says multi-million rand claims against auditing firms are on the rise.

Examples are the claim against PricewaterhouseCoopers (PwC), worth almost R8bn.

In March Randgold & Exploration (R&E) announced that it was claiming this amount from PwC.

PwC was the auditing firm for R&E during the period when murdered controversial mining magnate Brett Kebble was stripping the company.

There are only two cases in which the liability of auditors is always unlimited.

These are when fraud has been perpetrated and an auditor is aware of it, or when an auditor is conscious of criminal behaviour.

Agulhas reckons there needs to be joint liability.

"Something tells me no-one could have made such a big mistake - auditors are not policing bodies. It's normal that they can miss things.

"When a company's directors or management commit fraud, they conceal it as best they can. Naturally they won't bring the documents to the auditor's attention."

Agulhas also refers to the potential claim of $35m-plus against KPMG International arising from the Leaderguard fiasco.

The company's head office is in Mauritius, but the claim has been instituted against the international firm, which means that the South African partners also become involved.

The Auditing Profession Act stipulates that auditing firms have unlimited liability.

Agulhas says the IRBA is becoming increasingly concerned about claims against auditors.

He does not wish to protect auditors implicated in fraud, but he does want to see fairness in the system.

In the US and Britain auditing firms can decide to fix their liability as a multiple of the audit fee, or limit it based on proportional liability.

Research indicates that auditing firms can also choose to establish a company or partnership with limited liability.

This is apparently fairly popular in the US and Britain. Incorporation (where smaller firms are absorbed by larger firms) is already commonplace in France, Germany, Japan, Switzerland and some Canadian provinces.

There are also statutory limitations on professional liability for negligence. These exist in Austria and Germany, and have recently been instituted in Australia.

According to Agulhas, from January 2004 to date the IRBA has received 725 complaints against auditors.

Of these, 50 have been found guilty. In all, 231 disciplinary investigations have been held, but there have been no convictions.

The remainder of the complaints have been investigated, but there have been no grounds for disciplinary hearings.

- Sake24.com

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