Big Four accounting firms are not taking lightly an attempt by the nation's banking overseers to curtail their ability to limit liabilities stemming from audits of financial institutions.

At issue is a pending proposal that would try to put a stop to auditors shielding themselves from being sued if the audit was negligent or failed to uncover fraud on the part of management.

"We are concerned that the proposal would restrict the use of agreements that are beneficial and that pose no threat to safety and soundness," KPMG LLP wrote in a comment letter to the banking regulators,

The Federal Reserve Board, the Office of Thrift Supervision, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. were among the agencies warning in a proposed advisery that these and other contractual provisions can weaken the auditor's objectivity.

The regulators became concerned after seeing an increase of such provisions in auditor contracts.

In public comment letters, three of the Big Four firms - KPMG LLP, Deloitte & Touche LLP and Ernst & Young LLP - warned of possible negative, even dire, consequences of a complete prohibition of liability limitations in engagement letters.

"The accounting profession and its clients are already burdened by a massive increase in litigation," Deloitte wrote. "Requiring auditors to assume more risk may require them to seek additional compensation."

Also, the proposal may reduce the number of firms willing to audit the financial institutions, Deloitte warned.

Representatives of the banking agencies either couldn't immediately be reached for comment or declined comment pending review of a complete set of public letters. The comment period closed last week, but some letters generally trickle in late, they noted.

-- Phyllis Plitch (Dow Jones Newswires)