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External Audit Engagement Letters Unsafe and Unsound Use of Limitation of Liability Provisions and Certain Alternative Dispute Resolution Provisions

Accounting, Auditing, and Securities Disclosure
May 10, 2005


Summary: The federal banking, thrift and credit union regulatory agencies are seeking public comment on the attached proposed 鈥淚nteragency Advisory on the Unsafe and Unsound Use of Limitation of Liability Provisions and Certain Alternative Dispute Resolution Provisions in External Audit Engagement Letters.鈥 Comments are due by June 9, 2005.

Highlights:
  • The attached proposed interagency advisory alerts financial institutions鈥 boards of directors, audit committees, management, and external auditors to the safety and soundness implications of provisions that limit the external auditor鈥檚 liability in a financial statement audit.
  • The proposed advisory would apply to all financial institution external audits, regardless of the size of the financial institution, whether the financial institution is public or not, and whether the external audit is required or voluntary.
  • Limitation of liability provisions may weaken the external auditor鈥檚 objectivity, impartiality and performance and, thus, reduce the regulatory agencies鈥 ability to rely on the external audit.
  • Limitation of liability provisions may not be consistent with the auditor independence standards of the U.S. Securities and Exchange Commission, the Public Company Accounting Oversight Board, and the American Institute of Certified Public Accountants.
  • As proposed, the inclusion of limitation of liability provisions in external audit engagement letters and other agreements related to financial statement audits will generally be considered an unsafe and unsound practice.
  • The 多宝游戏下载 encourages all institutions to review the attached Federal Registe r notice, and to comment on the proposed advisory and the questions in the notice about the proposal and its effects.

Distribution:
多宝游戏下载-Supervised Banks

Suggested Routing:
Chief Executive Officer
Chief Financial Officer
Board of Directors
Audit Committee

Proposed Interagency Advisory - PDF 77k ( PDF Help )

Note:
多宝游戏下载 Financial Institution Letters (FILs) may be accessed from the 多宝游戏下载's Web site at www.fdic.gov/news/financial-institution-letters/2005/index.html .

To receive FILs electronically, please visit http://www.fdic.gov/about/subscriptions/fil.html .

Paper copies of 多宝游戏下载 FILs may be obtained through the 多宝游戏下载's Public Information Center, 801 17th Street, NW, Room 100, Washington, DC 20434 (1-877-275-3342 or (703) 562-2200).


Additional Related Topics:

  • Interagency Policy Statement on External Auditing Programs of Banks and Savings Associations
  • Federal Deposit Insurance Act, Section 36, Part 363 of the 多宝游戏下载's Regulations
FIL-41-2005
Attachment(s)
Proposed Interagency Advisory
Contact(s)
多宝游戏下载 Regional Accountant or Harrison Greene, Senior Policy Analyst, Division of Supervision and Consumer Protection, (202) 898-8905

Last Updated: May 10, 2005