Engagement Letters—Provisions That Limit Your Liability

Source: Partner’s Report—the Monthly Update for CPA Firm Owners

The AICPA has issued an exposure draft, Indemnification, Limitation of Liability, and ADR Clauses in Engagement Letters.

Engagement letters that limit liability may be “discreditable” acts if done in violation of regulations that prohibit such agreements.

The AICPA notes that such provisions could affect an auditor’s independence unless indemnification is contingent upon the performance of accepted auditing standards.

The SEC disallows such clauses in engagement letters with public companies. They are also disallowed in many European countries.

The AICPA’s exposure draft can be found at here. 

From Partner’s Report—the Monthly Update for CPA Firm Owners, February 2008, p. 5, Engagement Letters, Why You Should Check Your Engagement Letters Now. For subscription information contact Institute of Management & Administration, Inc., 3 Park Avenue, 30th Floor, New York, NY 10016-5902. One-year subscription $449. 212-244-0360, [email protected].

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