Each depositor insured to at least $250,000 per insured bank



Home > News & Events > Financial Institution Letters




Financial Institution Letters

External Audit Engagement Letters
Unsafe and Unsound Use of Limitation of Liability Provisions
FIL-13-2006
February 9, 2006


Summary: The federal financial institution regulatory agencies have issued the attached final interagency advisory on the unsafe and unsound use of limitation of liability provisions in external audit engagement letters.

Highlights:
  • The attached final interagency advisory informs financial institutions' boards of directors, audit committees, and management that they should not execute agreements that incorporate unsafe and unsound external auditor limitation of liability provisions with respect to engagements for financial statement audits, audits of internal control over financial reporting, and attestations on management's assessment of internal control over financial reporting (audit or audits).
  • The final advisory applies to all audits of financial institutions, regardless of the size of the financial institution, whether the financial institution is public or not, and whether the audits are required or voluntary.
  • Limitation of liability provisions may weaken an external auditor's objectivity, impartiality and performance and, thus, reduce the regulatory agencies' 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.
  • The inclusion of limitation of liability provisions in external audit engagement letters and other agreements that are inconsistent with the final advisory will generally be considered an unsafe and unsound practice.

Distribution:
FDIC-Supervised Banks (Commercial and Savings)

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

Related Topics:
Interagency Policy Statement on External Auditing Programs of Banks and Savings Associations
Section 36 of the Federal Deposit Insurance Act
Part 363 of the FDIC's Regulations

Attachment:
Final "Interagency Advisory on the Unsafe and Unsound Use of Limitation of Liability Provisions in External Audit Engagement Letters" - PDF 88k (PDF Help)

Contact:
FDIC Regional Accountant or Harrison Greene, Senior Policy Analyst, Division of Supervision and Consumer Protection, on 202 898-8905 or hgreene@fdic.gov

Printable Format:
FIL-13-2006 - PDF 35k (PDF Help)

Note:
FDIC Financial Institution Letters (FILs) may be accessed from the FDIC's Web site at www.fdic.gov/news/news/financial/2006/index.html.

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

Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center (1-877-275-3342 or 703-562-2200).



Last Updated 02/09/2006 communications@fdic.gov