On 17 December 2007, the Financial Reporting Council published draft guidance on the new rules which enable companies to enter into agreements limiting the liability of their auditors. The new rules are being introduced by sections 534 to 538 of the Companies Act 2006 and are due to come into force on 6 April 2008. Under the new rules, a company will be able to agree to restrict the liability of its auditors to an amount that is "fair and reasonable in all the circumstances", subject to shareholder approval and compliance with the relevant sections.
The draft guidance published by the FRC includes (amongst other things) commentary on the types of provisions which may be included in liability limitation agreements and the manner in which auditor liability may be limited. Draft specimen principal terms for liability limitation agreements are appended to the FRC paper.
Comments on the draft guidance are requested by 14 March 2008. Following the consultation period, the FRC intends to publish the final guidance in May 2008.
The draft guidance may be viewed here