The UK's top companies are preparing to reject liability caps proposed by auditors.

Lawyers this week told Accountancy Age that firms are unlikely to get FTSE 100 companies to sign agreements to fix a cap for their liabilities, after investors said they would issue 'red-top' warnings on any companies who did.

'The lower end of listed companies may quite easily accept that, but the heads of audit at the firms are getting the impression that top companies will definitely not go for caps,' a City solicitor said.

A new regime for limiting auditor liability was introduced in the Companies Act and comes into force in April 2008. But there have already been fledgling negotiations - at times denied by the firms - about how the arrangements might work in practice. The discussions are heading for 'proportionality' arrangements rather than fixed caps.

In other practice areas, firms arrange for a cap of a multiple of fees to be outlined in contracts. Such a move might typically have seen top companies cap the liabilities at as little as £500m, ten times the highest audit fees.

The Association of British Insurers said that it would issue 'red top' warnings Ð its strictest admonishment on corporate governance Ð to any companies that arranged for a fixed cap.