Auditor Liability: Law and Myth D.R. Gwilliam Introduction Representatives of the accounting profession and the large auditing firms are currently lobbying for restriction of their liability in respect to negligent audit work. They argue that the overwhelming scale of claims to which they are exposed is such that unless measures are taken to allow audit firms to restrict their liability exposure there are likely to be significantly adverse consequences for the market for audit services. These may include the collapse of one or more of the large firms and consequent further restriction on competition within the market, or voluntary withdrawal by major firms from a market perceived as too risky for the level of reward offered. This is not a new debate – audit firms have been pressing for further legal protection for at least thirty years and the majority of the arguments have been 1extensively rehearsed over the years. However, the post Enron collapse of Arthur Andersen has both acted as a spur to the efforts of the profession and the firms to secure changes in the law and also provided, on the face of it at least, evidence to support their contentions as to the possibility and actuality of the demise of a major firm. This paper seeks to provide a background to this debate by means of setting out the legal environment within which auditors work and the various protection mechanisms currently available to auditors and then proceeds to consider ...