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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional liability

A firm audits Corvid Ltd and is concerned about claims from parties other than the company. Which action would be the most appropriate way to manage its exposure to unknown third-party users?

The best approach is to state clearly in the engagement letter and report that the report is addressed to members as a body, with no responsibility accepted to others, and to hold professional indemnity insurance. Cutting work or relying on management assurances would not protect the firm.

  1. AIssue the audit report without stating to whom it is addressed
  2. BInclude in the engagement letter and report wording that clarifies the report is addressed to the members as a body and that the firm accepts no responsibility to others, and maintain professional indemnity insuranceCorrect
  3. CReduce audit procedures on areas that third parties are likely to rely on
  4. DAsk management to confirm that no third party will rely on the statements

Explanation

Clear addressee and responsibility wording, together with PI insurance, are standard risk management measures. Omitting the addressee weakens the firm's position. Reducing procedures would increase the risk of breach, and management confirmation cannot bind unknown third parties.

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