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Big 4 Firms Performing Quite Well in the Self-Preservation Department

If you are able to find Google's homepage and have a couple of functioning digits, it isn't difficult to find news of Big 4 audit firms settling lawsuits over the past few years. Satyam. Countrywide. Bear Stearns. Sino-Forest. There are others. There will be more.

In the UK, regulators have been grilling the Big 4 over their oligarchy and the firms have consistently argued that the competition out there is fierce — especially amongst themselves. Along with the question of dominating the marketplace, the Queen's Competition Commission looked into professional negligence claims against the firms over the past ten years and found that they aren't what you might expect, as the FT recently reported

As part of its year-long probe, it found there had been few successful professional negligence claims worth more than £1m against UK auditors over the past decade, although it did not disclose details of these payouts, in order to protect confidentiality. 

While Deloitte derided this as an "incorrect conclusion" that "[was] not supported by the evidence," E&Y was little more like, "Yeah, you got us; BUT JUST YOU WAIT": 

Ernst & Young admitted that “the last eight years have been marked by relatively low levels of [professional negligence] settlements” but said that this trend was coming to an end amid “an increase in the volume of claims and indeed the size of claims”.

So the sky will fall at some point and since making payouts due to auditor failure, negligence, or good ol' incompetence is a cost of doing business these days, it should as no surprise that there are some deft strategies being used: 

Audit firms were also cushioned against the financial impact of slip-ups by a combination of ”captive insurance” – an in-house form of cover – and reinsurance, the Competition Commission added.
Of course, accounting firms cannot survive on insurance alone:
Jane Howard, head of professional liability at Wragge & Co, a UK-headquartered law firm, agreed that the legal climate for accountants had been relatively benign. “The Big Four are so well risk-managed,” she said, adding that English law was “really quite protective of auditors”.
Having the law on your side never hurts.

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