Beale and Company Solicitors LLP appeared in Accountancy Age recently having provided the first evidence that audit firms are struggling to agree Limitation of Liability Agreements (LLA's) with clients. According to our survey, only 17% of accountancy firms have been able to agree an LLA with a client.

The survey of 100 firms of accountants also revealed that only two types of LLA are being used despite the Companies Act 2008 permitting auditors to use a variety of ways to limit their liability to audit clients. To date firms seem to be using only proportionate liability or financial limit type LLAs but no doubt in time they will become more creative in their wordings and for example seek to limit their exposure by reference to particularly high risk areas of the audit.

Of the respondents 25% also noted that they had not informed their insurers of the fact that they were using them. Of those that had, none felt that it had made any difference to their premium as a result.

This may well reflect a belief amongst underwriters that it is too early to ascertain whether LLA's will make any significant difference in practice to their exposure for all but the largest firms. The Courts have of course always had powerful tools to limit the liabilities of auditors and also shown that they are prepared to use them. Only time will tell if evidence emerges of either a lower number of claims or a reduction in their value.

The full results revealed that:

* 17% of firms had agreed one with a client.
* Use of LLAs is more prevalent amongst the larger firms.
* All of the firms were using only proportionate liability or financial limit type LLA's.
* 50% of firms were using specimen FRC wording.
* 83% were in favour of LLA's.
* 33% of the firms had experienced a client refusing to enter into an LLA.
* No client had yet asked for a fee reduction in return for agreeing an LLA.
* Of those who had entered into an LLA, 25% had not told their insurers of the fact.
* None of them felt that their insurance premium had reduced as a result.

The results of the survey have been publicised by Accountancy Age, the leading independent news and information publication for accounting and finance professionals. Click here for the full article.

For further information on any aspect of auditors' liabilities or to comment on this article please contact Ed Anderson on 020 7420 8703 or e.anderson@beale-law.com.