Accountants and limited liability

It was only until recently that accountancy practices were always set up as non corporate entities; however, now nobody is surprised to encounter accountants operating via a limited liability company, or as a limited liability partnership.

In an increasingly litigious world, the attractions of limited liability are obvious, and just like anyone else in business; the sensible accountant will take all reasonable measures to limit the amount of their liability to their clients and others.


There have been various cases dealing with auditor’s duty of care to third parties. Perhaps the most well known case is Royal Bank of Scotland v Bannerman Johnstone Maclay (Scottish Court of Session), known as the Bannerman case. In 1998 a company went into liquidation owing £13m to Royal Bank of Scotland (RBS). The bank claimed that the auditors had been negligent because they did not notice a fraud that had led to the accounts being mis-stated.

The bank won the case, and afterwards, many audit reports have been prepared with a disclaimer clause included, stating that the auditors did not owe a duty of care to third parties, but only to the members, the addressees of the audit report. 

ACCA’s council does not encourage the inclusion in audit reports of standard disclaimer clauses which could have the effect of devaluing the report in the eyes of many. Council stated ‘while it remained open to members to include disclaimer paragraphs in the auditors report, ACCA would not encourage this’.

ACCA produced Technical factsheet 84 about the Bannerman case, which can be accessed from 'Related documents'.

The Companies Act 2006 includes a section on auditor’s liability that did not exist in the Companies Act 1985. The provisions are in sections 532 to 538, and allow a company and its auditor to set up a ‘limited liability agreement’.


Whilst audit is one of the significant risk areas for an accountant in practice, it is unfortunately not the only type of engagement that could cause a problem. ACCA members in practice are obliged to have professional indemnity insurance, which will hopefully offer some protection to the professional accountant.

Engagement letters

ACCA members are also obliged by the rulebook to have engagement letters in place before commencing any work for a potential client. Engagement letters are a very effective loss-avoidance tool. If problems arise in the client relationship, the engagement letter can provide essential evidence of the exact terms agreed, and may well head off an incipient legal action.

Download our free Technical Factsheet Engagement Letters for Tax Practitioners and Technical Factsheet Engagement Letters - Accounts production. Both include a client covering letter with a privacy notice, a terms and conditions document and various schedules of services.

These letters do not reflect the CV19 services provided to clients. ACCA has produced a schedule of services for these.