ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional liability
Brennan & Co audits Veltor plc. The audit report is included in an annual report that may be read by potential investors. The firm wants to reduce its exposure to claims from parties other than the shareholders as a body. Which action is most directly aimed at limiting liability to such third parties?
Stating in the audit report that it is prepared solely for the members as a body and for no other party is the step aimed at limiting liability to third parties. The other options relate to evidence, risk or independence, not third-party exposure.
- AObtaining a larger management representation letter
- BIncluding in the audit report a statement that it is made solely to the company's members as a body and to no other partyCorrect
- CReducing the audit sample sizes on low-risk areas
- DRotating the engagement partner every year
Explanation
A disclaimer of responsibility to third parties, stating the report is addressed solely to the members as a body, is the established way to limit exposure to third-party claims. Representation letters are evidence, not liability protection. Smaller samples would increase risk, and rotation concerns familiarity threats.
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