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Aipedia: Auditors
When an AI-assisted audit fails, the audit firm usually carries the claim, not the tool vendor, and the FRC is clear that people remain accountable. Liability limitation agreements and the firm's PI policy then decide how much of the loss falls on the firm.
Part of: AI in Auditors
In short
The FRC says the firm and engagement partner retain full responsibility for audit quality when AI is used, so a client's claim will be against the audit firm. The firm may have a contractual claim against its vendor, but that depends on the contract. The firm's liability to the company can be capped by a liability limitation agreement under Companies Act 2006 s.534, if it meets s.535 and members approve it under s.536. ICAEW audit firms must hold PI of at least £2m, or 2.5 times fee income with a £250,000 floor below £800,000. None of these rules mentions AI.
The FRC factsheet is direct: the firm and engagement partner retain full responsibility for audit quality under ISQM (UK) 1 and ISA (UK) 220. The FRC said at launch that it is people, the firms and Responsible Individuals, who are accountable. That reflects the regulatory position, and it mirrors the civil one: the audit client contracts with the firm, and a negligence claim is usually brought against the firm.
Section 534 of the Companies Act 2006 allows an agreement limiting the amount of the auditor's liability to the company. It is an exception to the rule in s.532 that such provisions are void. The agreement must comply with s.535, members must authorise it under s.536, and it is effective only to the extent s.537 allows.
Nothing in those sections is specific to AI. A properly made agreement applies to an AI-assisted audit as to any other. But it limits liability to the company only, so it does not answer claims from third parties, which depend on whether a duty was owed at all.
Under the ICAEW PII Regulations, audit firms registered with ICAEW must hold a minimum limit of £2m, or 2.5 times fee income with a £250,000 floor where fee income is below £800,000, and the excess may not exceed the greater of £3,000 or 3% of fee income (regulations 3.2, 3.3 and 3.7). ACCA audit firms follow the ACCA rules. Neither set of rules mentions AI, and no regulator has made a statement on AI and auditors' PI. See ICAEW PI requirements and audit firm PI cover explained.
Audit PI is usually written on a civil liability basis, so a negligence claim would usually be covered whether the error came from a person or a tool, subject to the wording, exclusions and excess. Three points deserve attention. First, aggregation: one tool fault repeated across many audits can be treated as one claim or several depending on the wording. Second, notification: when a firm discovers a tool fault, it may need to notify circumstances for every affected audit. Third, the regulatory minimum may not be enough if AI increases the size or number of potential claims. It is worth checking whether your wording contains any AI-related clause; see AI exclusions and clauses and does PI cover AI mistakes.
Scope of duty limits often matter more than the AI itself; the auditor scope of duty case study shows how.
Insurers may ask audit firms which AI tools they use, on what tasks, how they are certified and reviewed, and whether client data goes into external tools. Firms that can point to a tool register, certification records and file-level documentation consistent with the FRC guidance are better placed to answer. Proposal forms vary, so answer accurately; incomplete disclosure can affect cover.
Related: certifying AI tools, agentic AI and the accountants' page on PI cover for AI mistakes.
Apex arranges PI for audit firms and can review your limit, aggregation wording and disclosures about AI before renewal. See the AI in audit hub.
Not as a defence to the client's claim. The FRC says the firm and engagement partner retain full responsibility. The firm may have a separate claim against the vendor under its contract, but software contracts often limit vendor liability.
Yes, if it is properly made. Sections 534 to 537 of the Companies Act 2006 are not specific to how the audit was performed. The agreement must comply with s.535 and be authorised by members under s.536, and it only limits liability to the company.
No. They set minimum limits and maximum excesses for audit firms and other regulated firms but do not address AI. The FRC guidance on AI does not address insurance either.
Practice varies. Some audit PI wordings may not single out AI, but wordings differ and insurers may ask about AI use at renewal. Check your wording with your broker.
Tell us about your firm and the work you do. A broker will review how your current PI treats AI-assisted work, or arrange new cover. No fee for a quote. Or call 0117 325 0027.
Start a PI quote Request a callbackApex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 07014570. This page is general information about how AI is used in the profession and how insurance may respond. It is not legal, regulatory or insurance advice on your circumstances, and it does not guarantee that cover will be available or on what terms.
