The umbrella body for local chartered accountants has moved to help save its members from potentially costly legal action.
Following a lead taken by colleagues in Britain and several other jurisdictions, the Institute of Chartered Accountants of Barbados (ICAB) has now issued a “guidance document” advising its more than 800 members to include a new “disclaimer” in their audit reports in an effort to prevent “third parties” from suing them.
According to the seven-page document circulated by ICAB’s Accounting and Auditing Standards Committee, the issue surrounds the “duty of care” auditors have.
In 2003, following a Scottish court’s decision to allow a third party to bring an action against an accounting firm, the British accounting profession modified its standard form of audit report to confirm/clarify those to whom a duty of care is owed by the auditor.
A disclaimer was subsequently issued to “eliminate the unintended duty of care to third parties that is not part of the auditor’s duties under the terms of their appointment”.
“ICAB has considered the appropriateness of the disclaimer and now recommends that local auditors who wish to manage the risk of liability to third parties use this disclaimer in their reports . . . the auditors’ responsibilities to their clients, that is, the company’s members, as a body, will remain unchanged,” the document told members.
“While it is not necessary to amend engagement letters to make provision for the clarification wording in the audit report, this may be advisable in most circumstances . . . . It may also be helpful to explain the following points to clients [that] the inclusion of the disclaimer does not affect the auditor’s obligation to their clients.
“Instead it clarifies that the audit is for the benefit of the company’s members in accordance with Section 147 of the Companies Act of Barbados. Auditors will have the same duties and liabilities to their clients as they have always had.
“The new wording does not mean that auditor will never agree to take on responsibilities to third parties such as lenders. All it does is make clear that auditors will only accept duties that are expressly agreed. Auditors maintain that if parties want to rely on their work then they should approach the auditors to agree expressly the scope and nature of work that auditors can do for them that meets their purposes,” ICAB added.
