Professional negligence claims – what are the responsibilities of accountants to their clients?

Professional negligence claims against accountants can be rather complex matters with a lot of factors to consider. One way to simplify the process of considering whether there is even a case to be made/answered is to start by looking at whether the accountant is in breach of their responsibilities to the client.

Engagement letter

In the normal course of business an accountant will almost always limit the services they provide to those listed in the letter of engagement. The reason this is important to a potential claim is that an accountant can reasonably argue that their responsibilities to the client are limited to those that relate to these services.

An example of why this is relevant is that it would not be fair to expect an accountant charged only with preparing a company’s accounts, to detect a fraud that has occurred, or to notice an error in the calculation of a particular employee’s pay.

This is not to say that if such a matter happened to come to the attention of the accountant in the course of their work that it should not provoke a response from them. If, for instance, an accountant did detect an error in the company’s payroll system it should be expected that they would report this to their client. Rather it means that it is not their responsibility to detect it.

One caveat to the above is where the accountant agrees to provide additional services either in writing or verbally. In such a scenario it is reasonable for a client to expect the accountant to now also be responsible for these services, even though they may not be listed in any engagement letter. Of course proving that an accountant verbally agreed to do something can prove problematic.

Duty of care

Irrespective of the method of instruction an accountant owes a duty of care to its clients to carry out the services it provides competently and diligently.

This is an important consideration because even where a document (such as an engagement letter) exists that covers the scope of services it will often be silent as to the exact methods the accountant will use to provide them.

For instance, in preparing a company’s accounts the accountant would be expected to ensure that they request adequate information from the client to allow them to do this, and to ask appropriate questions of the client when issues arise. It would be a failure of the accountant’s duty of care if they relied only on information volunteered by the client and did not attempt any sceptical appraisal of whether this was sufficient.

It is therefore possible for an accountant to fulfill its responsibilities under a scope of services, in a technical sense, whilst failing to fulfill its responsibilities under a duty of care.

The Ensors forensic accounting team has substantial experience in advising on professional negligence claims against accountants, particularly where this relates to the responsibilities that they owe. We would be happy to provide a quote for initial advice, or for the production of a full expert report.

Please click here to get in touch with the team.