ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional liability
An audit firm wants to reduce the risk of being sued for negligence by performing better work rather than by contract terms. Which measure most directly reduces the likelihood of a claim?
Applying the firm's quality management system, with engagement quality review on higher-risk audits and well-documented scepticism, reduces the chance of negligent work and so the likelihood of claims. Insurance, caps and disclaimers only limit the impact, not the probability.
- AApplying the firm's quality management system, including engagement quality review for higher-risk audits and documented professional scepticismCorrect
- BTaking out additional professional indemnity cover
- CAdding a disclaimer to the engagement letter
- DSetting a liability cap in the contract
Explanation
Quality management with engagement quality review reduces the chance of negligent work, so it lowers the likelihood of claims. Insurance, disclaimers and caps only affect the consequences or amount of a claim, not its likelihood.
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