Acca aaa s21 Notes

September 2021 to June 2022 exams
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5. Ways to restrict liability
In addition to the measures set out above, the following may restrict liability:
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Professional indemnity insurance (PII). This will pay compensation to injured parties in cases of 
negligence.
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Fidelity Guarantee insurance (FGI): Insures against the dishonesty of staff or partners. Both PII 
and FGI may be mandatory (eg to obtain an ACCA licence to practice).
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Incorporation: Instead of being a normal partnership where the partners have unlimited liability, 
the firm becomes a limited liability partnership. The partners’ personal wealth is protected.
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Liability limitation agreements. The engagement letter includes a cap on the amount of 
compensation payable to clients. This gives no protection against third party claims. An 
agreement is only valid if it is:
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fair and reasonable
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for the current year only
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approved by the shareholders.
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Proportional liability. Under this system the auditor and the client would share the burden of 
paying compensation to injured third parties according to blame - not ability to pay
September 2021 to June 2022 exams
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Chapter 8