'PI questions' for auditors

08/04/2008

Auditors looking to limit their liability could find themselves facing questions from their professional indemnity (PI) insurers, it has been warned.

Commercial law firm Beachcroft suggests that new arrangements under the Companies Act could spur such queries from PI providers, reports Post Magazine.

The new legislation came into effect on April 6th and allows auditors to place limitations on their liability.

But this, Beachcroft tells the publication, "will raise a number of questions for insurers providing auditors' indemnity cover".

Professional risks partner at the firm Patrick Hill explains: "Insurers will want to know what arrangements audit firms are reaching with their clients, as this will have an impact on potential exposures."

The firm concludes that an immediate effect both on claims and on underwriting practices is likely to be observed.

Under the terms of the Companies Act, firms may not indemnify their auditors against claims of negligence or "other default" brought by the company itself.

While the legislation reasserts that auditors may be indemnified against the costs of a successful defence, such cover may not be provided by the firm on their behalf.

PYV are one of the UK's leading providers of professional indemnity insurance. This news article has been produced by Adfero in collaboration with PYV and its unauthorised use is not permitted.

(c) 2008 Adfero Ltd.

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