Liability Caps

Understanding the importance of liability caps and how these work in your Engagement Letters.

Russell Henderson avatar
Written by Russell Henderson
Updated over a week ago

As an accountant or bookkeeper, it's crucial that you communicate your Limitation of Liability to your clients. This helps to protect your firm from potential legal action and ensures that your clients are aware of the extent of your liability.

One of the most effective ways to do this is by including a limitation of liability clause in your Engagement Letters.

Determining what the limitation of liability should be can be a challenging task for accountants and bookkeepers, but setting a fair and reasonable limitation of liability is crucial for accountants when drafting engagement letters.

So...we've sought expert guidance to help you get this right.

Default Liability Cap in Your Engagement Letter

After liaising with our experts and legal teams, they have communicated that a generally accepted approach is to set your liability limit to 100% of the fees for your engagement.

So when you sign up to OverSuite, this is the cap that will be set for you automatically and that will pull through to the Terms of Conditions in all the letters you send.

Since you are best placed to manage risk in your firm, we still give you the opportunity to over-ride this default or the cap on a client-by-client basis.

For example, for a particularly high risk piece of work, you might choose to raise the limit of liability for that specific engagement.

How to over-ride the Liability Cap

You can over-ride the default liability cap pulling through to your Engagement Letters, and each cap can be over-ridden on a per proposal basis.

(1) Over-ride your default liability cap

Head to Configure > Engagement Letters > Liability Caps.

​On this page, you can then toggle on the option to allow the overriding of the standard liability cap.

You can then choose what the default cap for your proposals should be by advising how how many times the total of the fees should be multiplied by, or by entering a custom value.

Once completed, you will need to provide consent that you understand and have considered your thoughts behind this choice of liability cap.

Be sure to click save to capture your changes.

(2) Over-ride the liability cap on a per client/proposal basis

Once you have enabled the ability to override the liability caps, you can then override the liability cap for a specific client or proposal, if needed.

When creating a proposal, in the 'complete proposal' section, here you will find the ability to override the caps for this client/proposal.

For any changes made to the liability cap for this client/proposal, including if you enter a custom value or custom multiplication, you will be prompted to confirm that you understand and have considered the changes you're making.

The information on the liability caps, whether edited in the create proposal page or not, will be entered into the Limitation of Liability section in the engagement letter, as shown below.

This can be reviewed in the 'Preview Letter of Engagement' section before sending this to the client.


Is the new approach compliant with my professional body?

Our compliance experts can confirm that the new approach is compliant with your professional body, with further explanation of our approach below.

Professional bodies require all practicing professionals to have a minimum level of PI insurance based on the total fee income of the practice, however the exact amount required may vary based on your specific governing body. We recommend that you consult with your governing body to determine the exact amount of PI insurance required for your practice.

It is important to note that details of your full PI Insurance coverage should be made available to your clients upon request, and this is handled by the OverSuite wizard which provides this information within your terms and conditions.

It is important to understand that the liability cap you set for your client engagement is completely separate from your total PI insurance coverage. While governing bodies offer guidance that you should communicate your liability cap to clients, they do not provide specific guidance on what the cap should be set at.

Our experts recommend that you set a liability cap that is deemed as fair and reasonable based on the risk of the assignment. In many cases, this will be the fee charged for the assignment, and the reasoning behind this is that our legal teams feel this would fairly represent the risk of the work being done, hence our new approach.

If you feel the particular assignment is higher risk than the fee charged, you have the freedom to raise the cap and over-ride it on a proposal by proposal basis.

We hope this provides you with a clearer understanding of the relationship between PI insurance and liability caps for engagements. If you have any further questions, please do not hesitate to reach out to us.

Why have you changed your approach?

We noticed that the current feature was a barrier to getting started with OverSuite and we wanted to make the process easier for you. Our new approach is similar to our previous approach in that it still considers the risk of the total engagement, based on the assumption that the fees for the engagement would be a fair representation of the risk involved. Having this set as a default means less work for you, however we still give you the flexibility to over ride the cap to one you feel best represents the work being done. Setting liability caps can be a complex and time consuming process, and we hope this change will make it easier for you to get started with OverSuite and take advantage of all the benefits it offers.

If you have any questions, please reach out to us in the chat box below! 😃

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