Auditing and Assurance Standards and Guidance

Miscellaneous Auditing Documents

FRC Guidance on auditor liability limitation agreements

Appendix D Specimen principal terms: Auditor's liability limited to a cap on liability expressed as a monetary amount or calculated on the basis of an agreed formula

Explanatory notes

Note 4

Where the Company is a member of a group of companies, the Company and Auditor may wish to agree a limit for the group as a whole which can be shared between different companies in the group. For this reason the limit is expressed as a maximum aggregate so that it captures multiple acts of negligence and applies to all companies in a group. If the limit is a fixed sum it will need to be apportioned between the group companies, so that the total of all amounts paid to any group company do not in aggregate exceed the agreed amount. This is consistent with the common practice for audits of groups to have an audit engagement letter addressed to the parent, to which all other group companies agree separately, in line with ISA (UK&I) 210, Terms of Audit Engagements.

Parties who want the limit to be apportioned between different companies in the group should consider how to achieve this and whether there should be a fall back mechanism to be applied if the relevant companies cannot agree on apportionment.

Reference to the fees payable under the Engagement Letter will, assuming a "group" letter as described, capture all fees payable by all companies, although it will be important to make sure the drafting fits appropriately with the drafting of the Engagement Letter.

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