Accountants hit by sharp rise in claims

PROFESSIONAL negligence claims taken out against accountants in the High Court significantly jumped last year as a result of the global recession.

The High Court heard 13 professional negligence claims taken against accountants in 2009, according to data published by law firm Reynolds Porter Chamberlain (RPC).

The number marks a sharp increase from the previous four years, when only four claims were made.

Failing to spot fraudulent behaviour, overvaluing a company’s assets and missold schemes to mitigate capital gains tax were listed as some of the claims facing accountancy firms.

“The legal claims landscape for accountants has been relatively benign for the last few years,” said RPC partner Jane Howard. “What is still hard to tell is whether this sudden rise in claims will subside quickly or whether accountants will face a higher number of claims over the coming year.”

She said that accountants sometimes face professional negligence claims from businesses and investors sitting on recession related losses because they have professional indemnity insurance to cover legal costs and any damages awarded by the judge if they lose.

The highest number of claims came during 2002, when the courts saw 37 negligence claims taken out against accountants, which followed the landmark failings of giants Enron and WorldCom.

The news comes weeks after accountancy firm Ernst & Young (E&Y) was singled out in a US court appointed report on the Lehman Brothers crash.

The 2,200 page report issued by Anton Valukas, which was appointed as auditor of the bank, did not meet professional standards after reviewing the bank’s value of the Repo 105 transactions.

Regulators have subsequently asked E&Y to hand over any auditing documents in relation to Lehman Brothers and E&Y have complied.