US regulators should consider measures to limit accounting firms' exposure to potentially ruinous litigation as part of efforts to deal with concerns about concentration in the audit market, according to a think tank report.

The American Assembly, an influential public policy forum, outlines steps that fall short of legislative action yet would shield accounting firms from legal claims that they fear could destroy them.

Mr William McDonough,outgoing chairman of the Public Company Accounting Oversight Board, warned auditors on Friday that the American public would not presently support liability protection. But the Assembly's report puts the onus on regulators such as the Securities and Exchange Commission and the PCAOB to safeguard the profession from litigation.

The report stems from a conference in May involving academics, accountants, bankers, company directors, lawyers and regulators. A Financial Times reporter also participated.

The big four accounting firms Deloitte, Ernst & Young, KPMG and PwC have been seeking liability protection since claims against them began to increase in number and size during the 1990s, particularly in the US.

Concerns about audit concentration intensified after the 2002 collapse of Andersen, once the world's biggest accounting firm, over its role in the Enron scandal. Some companies have complained about a lack of choice in auditors.

The conference was told that medium-sized accounting firms were unable to provide audit services to many of the big four's clients because they lacked the global reach and technical expertise to assist big multinational public companies. Also, analysts and investment bankers expressed concerns when companies used auditors from medium-sized firms, it was said.

In spite of unease about audit concentration, the Assembly's report does not support the case for government intervention to break up the big four into smaller businesses. Instead it highlights that lawyers told the May conference that the SEC had the authority to create a limited safe harbour that would shield auditors from unwarranted litigation.

The safe harbour might be contingent on a PCAOB review of any disputed audit work, the report said, and should not prevent the SEC pursuing auditors in malfeasance cases.

The report says regulators should use their authority to educate the public that there is no such thing as an infallible audit.

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