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Auditor liability

Helpsheets and support

Published: 09 Jun 2011 Update History

Auditors' Limited Liability Agreements (LLAs): what you need to know about LLAs as an auditor or company director, and detailed background information.

We believe that reasonable liability limitation for auditors is in the best interests of shareholders, companies, auditors and the markets at large.

Auditor Limited Liability Agreements are contracts designed to ensure that auditors are not pursued for excessive losses, just a reasonable proportion based on their responsibility. They have been allowed under the terms of the Companies Act 2006 since 6 April 2008.

However, LLAs must be subject to shareholders' approval and, in the event of a dispute, the courts judging their terms to be "fair and reasonable". This has raised a number of questions for auditors and company directors who want to use them.

Auditors

If you are an auditor you need to read the Financial Reporting Council (FRC) guidance, and a legal opinion on LLAs which we have obtained.

You should also start talking to clients about why there should be an LLA in place.

Directors

If you are a company director you need to read the Financial Reporting Council (FRC) guidance, and a legal opinion on LLAs which we have obtained (PDF 165KB/ 6 pages).

The guidance and opinion discuss LLA contracts and your duty to shareholders, and other important issues.

Background

This article is a longer version of one in the August 2008 edition of Accountancy. It gives background information on LLAs and why they are needed, and asks how companies, investors and shareholders should respond.

Auditor liability limitation outside the UK

An overview of the law and attitudes to auditor liability in the EU, US and Australia.

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Auditors' Limited Liability Agreements (LLAs).

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