The Association of General Counsel and Company Secretaries of the FTSE 100 (the GC100) has issued a note on auditor liability limitation agreements (LLAs). Since 6 April 2008, auditors have been able to limit their liability by agreement with the company. In June 2008 the Financial Reporting Council (FRC) issued detailed guidance and the Institutional Shareholders Committee issued a statement setting out the institutional shareholder view on LLAs.
The GC100 note summarises the law on LLAs, the institutional shareholder position and the guidance produced by the FRC. It emphasises, in particular, that this is an area of new legislation where one size does not fit all. It says that directors of a company proposing an LLA should carry out a detailed analysis of the company's individual position and the directors should be willing to defend any LLA they put before shareholders, given the increased risk that the company may not be able to recover all the loss it has suffered where it has entered into an LLA.