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Contractor accountants facing more negligence claims

Contractor accountants facing more negligence claims

Last year, 13 professional negligence cases were filed against accountants in the High Court according to Reynolds Porter Chamberlain LLP, a city law firm. Only 4 claims were made over the previous 5 years and this massive increase is being blamed on the recession.

Lawyers also predict that this is just the start of a surge of compliance cases. Companies that failed during the recession could be tempted to sue the big accounting firms, and some well known contractor accountants, believing that they have deep pockets.

Jane Howard, a partner at Reynolds Porter Chamberlain, thinks it most likely that claims will centre on the over valuation of company assets or failure to spot fraud during a company audit. Tax accountants could also face accusations of giving bad advice or mis-selling schemes relating to deferring capital gains and income tax.

The Big 4 accounting firms have already had cases filed against them in other countries and several firms could face lawsuits relating to Bernard Madoff’s Ponzi scheme.

Auditors had appeared to come out of the financial crisis reasonably unscathed until Ernst & Young was catapulted into the spotlight for their role in the Lehman Brothers collapse. They were fiercely criticised in a 2,200 page report for failing to give professional advice to Lehman Brothers and could now face legal action in the US courts.

As the current law stands, it’s hard to be successful in the UK when it comes to suing accountants for negligence because there is a higher legal threshold for proving liability. Speculative threats generally fall by the wayside once they have been firmly rebutted.

In 2009 the law lords threw out a multimillion-pound negligence case against Moore Stephens, a City contractor accountant which had been accused of failing to uncover a £58 million fraud at a commodity trader it had been auditing between 1997 and 2001. Although this case was dismissed, it was a split decision by the judges and this has led to less clarity about auditor’s fraud liability.

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Image: Broken Glass by Duke LeNoir

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