A part of gross income of the auditing firms is paid to insurance firms as part of professional indemnity insurance (PII) such that when negligence claims are brought against the audit firm, then the insurance will settle these claims.
Some professional bodies require their members in public practice to hold PII covering all civil liability incurred in connection with the conduct of the firm‘s business by partners, directors or employees. This means that if a client or other party successfully sues the firm for negligence, then the firm will not meet the claim but the insurer will. So if the firm is unable to pay a very large claim, the insurance will have the required resources.
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