Prospects for an EU-wide cap on auditor liability now look less likely after comments by Internal Markets Commissioner, Charlie McCreevy, who last week said such blanket legislation would be "probably unworkable".
He was speaking after announcing an industry-wide consultation on how to protect large auditing firms from unrestricted liability claims.
In the wake of the 2002 Enron scandal, companies are increasingly seeking legal redress.
Earlier this month Deloitte agreed to pay Parmalat more than 115m to settle claims in relation to the company's collapse.
And McCreevy's office has revealed that there are currently 16 claims against the Big Four's audit divisions of more than 160m and five claims of more than 750m.
McCreevy said: "There is a real danger of one of the Big Four being faced with a claim that could threaten its existence. However, given the differences between national markets, there is probably no one-size-fits-all approach."
The Commission has thus proposed four options to remedy the current situation which it describes as "untenable": fixed monetary cap at European level; a cap based on the size of the audited company; a cap based on a multiple of the audit fees charged, and member states introducing the principle of proportionate liability, making each party liable only for the portion of loss that corresponds to the party's degree of responsibility.
However member states are already split on the issue. While Germany, Austria, Belgium, Greece and Slovenia all have caps, the remaining EU states have no cap on liability.
And although the UK is currently introducing the concept of proportionate liability, there is already confusion over how it will work.
Over Christmas ICAS called on the Financial Reporting Council to hold discussions with investors and auditors of accounts in order to set out the principles for limited liability agreements (LLAs).
LLAs were included in the Companies Act which was recently given Royal Assent and will come into effect by October 2008. They allow auditors to manage risk in an audit assignment.
ICAS believes that the FRC should ensure that guidance is in place well in advance of the new regime coming into effect.
ICAS president, Norman Murray, said: "There is now a real need for the FRC to produce guidance to assist all the parties who will be affected by this change.
"It is not just at the listed company sector where this guidance will be useful. Auditors of all sizes of companies will be able to enter into negotiations with their clients to establish such agreements. Guidance produced by the FRC would serve as a useful framework around which such agreements could be formed."
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