Ways of minimizing auditor‘s potential liability for professional negligence.
– Stating in audit report the purpose of the report and that it may not be relied upon for any other purpose
– Advising the client in the engagement letter of the need to obtain permission to use the name of the accountant and withholding permissions in appropriate cases
– By limiting or excluding liability by a term in the engagement letter or third liabilities by a disclaimer in a report.
– By agreeing the duties and responsibilities in an engagement letter. This should specify the specific tasks to be undertaken and exclude specifically those that are not to be undertaken by the client and specify and limitations on the work to be undertaken
– By defining in their report the precise work undertaken, work not undertaken, any limitations to the work. This is so that any third party will have knowledge of the responsibility accepted by the auditor for the work done
– Identifying the authorized recipients of reports in the engagement letter or to third parties, by a disclaimer in the report
– Defining the scope of professional competence. The auditor should not undertake work that they are not competent to carry out
– By obtaining a professional indemnity insurance