May CPAs Use Exculpatory Clauses in their Letters of Engagement?
We lack a clear answer to a basic and important question. May a CPA performing attest services use an exculpatory clause or a limitation of remedy in his or her letter of engagement? Fearing catastrophic jury verdicts for malpractice, practitioners seem to be using such language with greater frequency-particularly waivers of punitive damages and, to avoid a jury, alternative dispute resolution clauses-and the current trend of the law seems increasingly to favor freedom of contract and to allow professionals to limit their liability contractually. A recent bar journal article suggests that accountants should be able to limit malpractice liability, and the "only concern here would be a finding that the accountant's work involved an 'important public interest' because it is being performed by a certified public accountant". This is a significant concern, however, and it might strip an auditor of the shelter of an agreement to limit liability.
Accounting Law | Law
Ehrlich, Craig, "May CPAs Use Exculpatory Clauses in their Letters of Engagement?" (2008). Babson Faculty Research Fund Working Papers. 32.