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ACCA Applied Skills · Corporate and Business Law (Global) · Other company officers

Lyra Ltd's articles contain a clause that fully excuses its auditor from any liability for negligence in carrying out the audit. The auditor later performs the audit negligently and the company suffers a loss. What is the legal position under the general company law rules in the syllabus?

The clause is generally void. A company cannot exempt its auditor from liability for negligence or breach of duty, although it may indemnify the auditor for the costs of successfully defending proceedings. Inclusion in the articles or shareholder status does not change this.

  1. AThe clause is valid, because the company freely agreed to it in its articles
  2. BThe clause is generally void, as a company cannot exempt its auditor from liability for negligence, although it may indemnify the auditor for successfully defending proceedingsCorrect
  3. CThe clause is valid only if the auditor is also a shareholder

Explanation

Provisions exempting an auditor from liability for negligence, default, breach of duty or breach of trust are void. The company may, however, indemnify the auditor against costs of successfully defending a claim. Being a shareholder is irrelevant, and the agreement in the articles does not validate the exemption.

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