ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional liability
Vale & Associates has an audit client, Tarn Ltd. The firm's risk manager reviews ways of reducing exposure to negligence claims. Which measure is a direct means of limiting the financial impact of a claim, rather than reducing the likelihood of one arising?
Professional indemnity insurance directly limits the financial impact of a claim by transferring the cost to an insurer. Quality management, engagement quality reviews and clear engagement letters mainly lower the chance of a claim arising rather than limiting its financial consequence.
- AApplying the firm's quality management system to all engagements
- BObtaining professional indemnity insuranceCorrect
- CPerforming engagement quality reviews on listed clients
- DUsing a detailed engagement letter to clarify the scope of work
Explanation
Professional indemnity insurance transfers the financial consequences of a successful claim to an insurer. Quality management, engagement quality reviews and clear engagement letters mainly reduce the probability that errors or misunderstandings occur.
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