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

Fenwick LLP audits Tallis Ltd. The engagement letter includes a clause stating that the audit report is prepared solely for Tallis's members as a body and that Fenwick accepts no responsibility to any other party. Lender Orrin Bank later claims against Fenwick, having relied on the statements without Fenwick's knowledge. What is the most appropriate view of the clause's effect?

The clause supports Fenwick's position that it assumed no responsibility to third parties like Orrin Bank. Such wording helps show reliance was unreasonable, though it does not remove liability to the client, where exclusion is typically restricted by law.

  1. AIt supports the auditor's position that no responsibility was assumed towards third parties such as OrrinCorrect
  2. BIt removes the auditor's liability to Tallis for negligence in all jurisdictions
  3. CIt is ineffective in every case because liability cannot be addressed in writing
  4. DIt transfers the liability to Tallis's directors personally

Explanation

A disclaimer or limitation of responsibility to third parties helps show no assumption of responsibility and that reliance was unreasonable. It does not remove liability to the client, where statutory limits on exclusion typically apply. It does not shift liability to directors.

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