Auditor Liability Limitation Agreements

Auditor Liability Limitation Agreements (LLAs) are used primarily in the United Kingdom (U.K.) for giving guidelines to auditors and allowing limited liability to them. It is created each year when an audit takes place within a business and is approved by the company's shareholders.

Description

These agreements were designed in the U.K. under Sections 532 through 538 of the Companies Act of 2006. The agreements are monitored by the Financial Reporting Council (FRC). These Sections of the Companies Act describe how these agreements should be set up and what is and is not allowed within the agreements.

Purpose

LLAs are designed to allow limited liability to auditors. With this agreement, an auditor cannot be sued for excessive losses a company suffers based on the auditor's findings. These agreements are not required between a company and an auditor; however, they protect the best interests of shareholders, auditors and companies.

Details

LLAs contain all pertinent information relating to the relationship between a company and the hired auditor. It lists details of what is expected from the audit and lists guidelines, pursuant to the Companies Act of 2006, an auditor should follow when conducting the audit.

References

• Financial Reporting Council: Auditor Liability Limitation Agreements
• Financial Reporting Council: FRC Issues Guidance on Auditor Liability Limitation Agreements
• UK Legislation: Appointment of Auditors of Private Company