Financial Institution Letter
Federal Deposit Insurance Corporation February 9, 2006
550 17th Street NW, Washington, D.C. 20429-9990
EXTERNAL AUDIT ENGAGEMENT LETTERS
Unsafe and Unsound Use of Limitation of Liability Provisions
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.
FDIC-Supervised Banks (Commercial and Savings)
• The attached final interagency advisory informs
financial institutions’ boards of directors, audit
Suggested Routing: committees, and management that they should
Chief Executive Officer not execute agreements that incorporate unsafe
Chief Financial Officer and unsound external auditor limitation of liability
Board of Directors provisions with respect to engagements for
financial statement audits, audits of internal
Related Topics: control over financial reporting, and attestations
. Interagency Policy Statement on External on management’s assessment of internal control
Auditing Programs of Banks and Savings over financial reporting (audit or audits).
. Section 36 of the Federal Deposit Insurance Act
. Part 363 of the FDIC's Regulations • The final advisory applies to all audits of financial
institutions, regardless of the size of the financial
Attachment: institution, whether the financial institution is
Final “Interagency Advisory on the Unsafe and public or not, and whether the audits are required
Unsound Use of Limitation of Liability Provisions in or voluntary.
External Audit Engagement Letters”
• Limitation of liability provisions may weaken an
FDIC Regional Accountant or Harrison Greene, external auditor’s objectivity, impartiality and
Senior Policy Analyst, Division of Supervision and performance and, thus, reduce the regulatory
Consumer Protection, on 202-898-8905 or agencies’ ability to rely on the external audit.
• Limitation of liability provisions may not be
FDIC financial institution letters (FILs) may be consistent with the auditor independence
accessed from the FDIC's Web site at standards of the U.S. Securities and Exchange
www.fdic.gov/news/news/financial/2006/index.html. Commission, the Public Company Accounting
Oversight Board, and the American Institute of
To receive FILs electronically, please visit Certified Public Accountants.
Paper copies of FDIC financial institution letters • The inclusion of limitation of liability provisions in
may be obtained through the FDIC's Public external audit engagement letters and other
Information Center (1-877-275-3342 or 703-562-
agreements that are inconsistent with the final
advisory will generally be considered an unsafe
and unsound practice.