Auditor Liability

Innervision

Hi folks,
Regarding auditors being found liable in the courts, someone told me once that ACCA and ACA differ slightly, I think it was that ACCA auditors put some sort of paragraph attempting to limit liability in their reports. Can anyone tell me anything about this? I've tried googling but got nowhere!
Thanks

Mr. Incognito

ALL auditors with a brain cell have limitations of liability. It will be along the lines of these represent a true and honest reflection of the accounts based on the information supplied to us.

Google any annual reports and read the auditors report and you'll see different versions.

Hanley

There's usually a limitation of liability clause in the letter of engagement and standard terms and conditions, as well as in the auditor report.

I think very generally speaking you're looking at a cap of 6-7 times your fee as max liability.

ninty9er

All auditors report on the basis of appearance (i.e "appears to be accurate" rather than "accurate") Also, the Auditors' Report in the Financial statements will say that the statements are based on information supplied to the Auditors and that they cannot be held liable for information that is provided inaccurately or not provided at all.

Innervision

Thanks guys, I'm specifically trying to highlight any differences in these paragraphs between ACCA and ACA, it's for a project. Maybe I should look at annual reports audited by both...can anyone reccommend any ACCA audited companies?

walshy123

Innervision wrote: »

Thanks guys, I'm specifically trying to highlight any differences in these paragraphs between ACCA and ACA, it's for a project. Maybe I should look at annual reports audited by both...can anyone reccommend any ACCA audited companies?

i didnt think that there were differences

The "Bannerman" paragraph is the one to which you refer. But any auditor would include this

Evertonia

ACA allow auditors to put in a disclaimer paragraph in their audit reports. ACCA do not allow this for it's members. ACCA's view is that if you have carried out an audit appropriately there is no need for a diclaimer paragraph.

aassddff

From what I have seen at class and in the office all auditors are strongly advised to include the Bannerman paragraph in the audit report to limit any potential liability to 3rd parties. I have noticied that some big 4 firms don't include it anyone know why this is so, it seems sensible to avail of as many disclaimers as possible

For that survey on differences have a look at a manual audit report and one on line for the same company you should see some differences there as well which will fill up a few pages for you

Keep us informed through thiss thread on how you get on

kluivert

Auditors Liability refers to the audit report being issued by third parties and not to whom to report is issued to - the shareholders.

Can not remember the case - but there was a case taken against a practice by a bank who based their lending on the auditors report.

Remember the Audit Report is issued to the Shareholders and not third parties.

Is it Disclaimer of Opinion report that you refering to:

There are two main audit reports.

Unqualified and Qualified.

Other type of reports are:

Disclaimer of Opinion.

- A lack of Independence or material conflict of interest between auditor and client
- Limitations of Scope.
- Going Concern

Adverse Opinion.

- Material Misstatement - unacceptable GAAP and/or material misstatement.

When reading an audit report please ensure you understand what you are reading. Failure to do so can lead you to pick up a wrong understanding.

Audit Reports are standardise so you should be able to spot the difference.

ninty9er

kluivert wrote: »

Auditors Liability refers to the audit report being issued by third parties and not to whom to report is issued to - the shareholders.

Can not remember the case - but there was a case taken against a practice by a bank who based their lending on the auditors report.

Where I was working last year it was practice to send clients requests for financial statements for banks to the client rather than directly to the bank, just in case the bank would take provision of statements as the auditor confirming belief that the client is good for a loan.

Innervision

Thanks for your input guys, much appreciated. It was a lecturer who told me about this, who has since left the college so I'm raging I never asked him more about it at the time! I'm pretty sure it was to do with differing opinions about the Bannerman paragraph (thanks for that walshy123, couldn't remember the name!) from the ACCA and ACA

Bren1609

CAn someone put up the Bannerman paragraph please?

walshy123

This report is made solely to the parent Bank's
shareholder in accordance with Section 193 of the
Companies Act, 1990. Our audit work has been
undertaken so that we might state to the parent
Bank's shareholder those matters we are required to
state to it in an Auditors' report and for no other
purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone
other than the Bank and the parent Bank's
shareholder for our audit work, for this report, or for
the opinions we have formed.

taken from Anglo's annual report, full report on page 30 http://www.angloirishbank.com/Investors/Reports/Annual_Report_2008/Annual_Report_2008.pdf

Hanley

Let's play spot the large or unusual movement;

Liabilities 2008 2007
Deposits from banks 20,453 7,601
Customer accounts 51,499 52,686
Derivative financial instruments 1,490 1,175
Debt securities in issue 17,280 23,588
Liabilities to customers under investment contracts 1,191 1,779
Other liabilities 156 175
Accruals and deferred income 140 190
Retirement benefit liabilities 6 7
Deferred taxation 26 49
Subordinated liabilities and other capital instruments 4,948 5,274
Total liabilities 97,189 92,587

walshy123

Innervision wrote: »

Thanks for your input guys, much appreciated. It was a lecturer who told me about this, who has since left the college so I'm raging I never asked him more about it at the time! I'm pretty sure it was to do with differing opinions about the Bannerman paragraph (thanks for that walshy123, couldn't remember the name!) from the ACCA and ACA

some background can be found here... http://www.icaew.com/index.cfm/route/132980/icaew_ga/PDF

and the full case (RBS v's Bannerman)... http://www.scotcourts.gov.uk/opinions/mcf1807c.html

walshy123

innervision, this probably answers your question (paragraph 19): http://www.accaglobal.com/pubs/members/publications/technical_factsheets/downloads/84.pdf

it would appear that ACCA do not agree with the inclusion of the Bannerman papagraph

ACA does recommend inclusion of such a paragraph

The CCAinsider

All of the accounting bodies allow or recommend the Bannerman paragraph. ACCA published an opinion to say that it would not work in a court case and particularly not when applied to a small company, and that the Bannerman decision did not alter the law in any major respect. ACCA does not bar members from using the Bannerman paragraph although it does not promote its use either. The Auditing Practices Board does not include the Bannerman paragraph in their guidance.


Auditors continue to have joint and several liability in Ireland. If one partner in a firm makes a mistake all of the other partners will end up paying, even if they are not responsible. Most EU countries have a statutory limit on auditor liability. In respect of statutory audit appointments, you can not limit your liability in any way and can have your insurance, practice, and personal assets seized in a legal case. If you don’t have enough to pay the damages your partners will need to make up your deficit.

Innervision

walshy123 wrote: »

innervision, this probably answers your question (paragraph 19): http://www.accaglobal.com/pubs/members/publications/technical_factsheets/downloads/84.pdf

it would appear that ACCA do not agree with the inclusion of the Bannerman papagraph

ACA does recommend inclusion of such a paragraph

Thanks walshy123 that's exactly what I was looking for, clears things up for me!