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Accountants and auditors - round up

12 December 2016

There have only been a couple of reported accountants’ and auditors’ professional indemnity (PI) cases within the past year.

The most recent decision is not ground breaking law but it serves as a good reminder of the need to test the evidence of witnesses thoroughly and as soon as possible. In Barclays Trust Company (Jersey) Ltd & others v Ernst & Young LLP (2016) the Claimants sought £18m in damages for alleged professional negligence of their accountants. The Claimants’ case at the start of trial was that, but for the negligence of their accountants, they would have sought to renegotiate the purchase price of a business, but it became clear in cross examination of the Claimant’s main witness that this would not have happened. The claim was ultimately dismissed on breach and causation.

In Blackman v HMRC (2016) the First-Tier Tribunal Tax Chamber (FTT) provided useful comments on who will be responsible to pay a penalty for an inaccurate tax return, which will be welcomed by accountants and their insurers. A professional footballer appealed against an inaccuracy penalty levied in relation to his tax return, which had been prepared by his accountants. The footballer challenged the penalty on the basis that he was a footballer not a “financial wizard” and “as a footballer he wouldn’t have had the training to establish whether the tax return was correct or even be able to understand the tax return, a complicated document".

The FTT confirmed that a taxpayer has a duty to take reasonable care to avoid any inaccuracies in their tax return – even if it is prepared by their accountant - and they found the footballer had failed to take reasonable care, noting that the error appeared several times throughout the return.

An interesting development which PI insurers may want to follow is the ICAEW’s application to become an approved regulator and licensing authority for additional reserved legal activities. The application follows the ICAEW becoming the first non-legal probate regulator in 2014. The activities originally covered in the application were: conduct of litigation, rights of audience, reserved instrument activities, notarial services, and administration of oaths. However, following talks with legal education providers the ICAEW has very recently amended their application to remove conduct of litigation and rights of audience. In the letter to amend the application, the ICAEW said the providers did not want to “undertake development work on the higher-risk qualifications for civil and criminal litigation and advocacy until the ICAEW is clear what the decision is on its application…This is because training courses for these reserved legal services are more expensive to develop and run than for the lower-risk activity of reserved instruments. The commercial risk to them of doing so is too high.” A decision on the application is expected in July 2017.

For a more detailed review of the cases mentioned above please read our recent legal bulletin.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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