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

Delta Audit LLP audits Corvia Ltd. The engagement partner proposes to include in the engagement letter a clause that caps the firm's liability to the client at a fixed amount for any claim arising from the audit. Which statement best describes the main effect of such a liability cap, where permitted by local law?

A liability cap limits how much the firm must pay the client if found negligent, where local law permits. It does not remove the duty of care, bind third parties, or replace the need for professional indemnity insurance.

  1. AIt restricts the amount the firm must pay the client if found negligent, but does not remove the duty of careCorrect
  2. BIt removes the firm's duty of care to the client entirely
  3. CIt prevents any third party from suing the firm
  4. DIt replaces the need for professional indemnity insurance

Explanation

A liability limitation agreement caps the amount recoverable for loss caused by negligence, where the law allows it. The duty of care still exists and the audit must still be performed with due skill and care. The cap does not stop third-party claims and does not remove insurance needs.

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