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

Brandt & Co audits Calder Ltd and is concerned about claims from third parties relying on the audited financial statements. The firm considers including a disclaimer in the audit report to limit its duty to anyone other than the company. Which approach is most likely to be effective?

The most effective approach is to state in the engagement letter and report that the audit is carried out for the company and its members only, with no responsibility accepted to other parties. Emphasis of matter, KAM or qualification are not tools for limiting liability.

  1. AIncluding an explicit statement in the engagement letter and report that the audit is for the company and its members, with no responsibility accepted to other partiesCorrect
  2. BAdding a separate emphasis of matter paragraph stating the auditor accepts no liability to anyone
  3. CIncluding a key audit matter stating third parties may not rely on the report
  4. DQualifying the audit opinion so that third parties cannot rely on it

Explanation

Stating clearly the intended users and that no responsibility is accepted to others helps limit the duty of care to third parties, and is consistent with case law on foreseeability and reliance. Emphasis of matter and KAM paragraphs are for matters in the financial statements, and a qualification is for misstatement or limitation, not liability management.

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