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

Kestrel & Partners audits Orlan plc, a listed company. The firm wants to cap its liability to the company at a fixed monetary amount through a liability limitation agreement (LLA), where permitted by law. Which feature is required for such an agreement to be effective in a jurisdiction that allows LLAs?

A liability limitation agreement is effective only if members approve it, it covers a single specified financial year, and the limit is fair and reasonable. It need not equal the fee, cannot run indefinitely, and does not need professional body approval.

  1. AThe cap must be set at the level of the audit fee for the year
  2. BThe agreement must apply to all audit years in the future without annual renewal
  3. CThe agreement must be approved by the company's members and limited to a specific financial year, and be fair and reasonableCorrect
  4. DThe agreement must be approved by the audit engagement partner's professional body

Explanation

Where LLAs are permitted (e.g. UK Companies Act model), they must be authorised by members, relate to a single financial year, and not exceed what is fair and reasonable in the circumstances. A cap equal to the fee is not required, and they cannot be indefinite.

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