Dangerous times for Accountants
The credit crunch has changed everything. And not for the better. Suddenly everybody is trying to shift the blame.
Bank managers are nervously looking at the easy loans they all too readily sold over the past few years nervously.
The promise that the real estate security that backed it is “as safe as houses” now rings rather hollow. Will the client still pay the loan when his house has negative equity? Suddenly the accountant’s certificate, so cursorily skirted over when the loan was first issued, is being dug out of dusty drawers and pored over.
If the client can’t pay, can the accountant? Surely the accountant certified that his client was good for the loan. Accountants look like an increasingly attractive target for litigation, backed as they are by the deep pockets of their professional indemnity insurers.
However not every loss will justify a claim. Not every error will sound in damages. An accountant is judged both in contract and tort against the standard of the reasonable care and skill that might b expected of an accountant of ordinary competent experience. An accountant will only be liable if he falls short of that standard.
To know how far that duty goes, one must ask what the accountant was contracted to do? One must remember that there is no such thing as a general retainer for an accountant. So the starting point is what the accountant has been employed to do under the engagement letter. Or what he was requested and he agreed to do. And what fiduciary duties he may have had. Moreover, unlike an auditor, an accountant can further limit his liability to some extent by using exclusion clauses and disclaimers.
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Professor Watson-Gandy is a barrister at Thirteen Old Square. The new edition of Watson-Gandy on Accountants: Law, Practice, Precedents and Procedure has just been published by Hammicks Legal, price £89
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