The Financial Reporting Council, the UK’s “independent regulator responsible for promoting confidence in corporate reporting and governance,” recently issued its Guidance on Auditor Liability Limitation Agreements (July 2008). As reported in the Birmingham Post, auditors have since April 6 been allowed to limit their liability for claims by a company for negligence, default, breach of duty or breach of trust.
DLA Piper’s Russell Orme believes that the FRC’s detailed guidance in July on the use of liability limitation agreements will lead auditors to increasingly take advantage of such limitations “for fear of being sued out of existence.” He states in the Birmingham Post article that many businesses are already familiar with the concept of liability limitations for accountants for services provided in the context of tax compliance and financial due diligence, and that companies not willing to accept such restrictions in audits could find it difficult to find interested auditors at a reasonable fee.
