Ernst & Young may yesterday have escaped having to pay a massive cost to former client ERF, a British truckmaker, for negligent work – but lawyers suggested the broader implications for accountants were 'less favourable'.
Commenting on the case, which emerged in the appeal court, a presiding judge suggested that auditors could face greater legal risks when auditing a subsidiary business that they know is probably going to be sold by its parent company, the FT reported.
'Auditors will have to take particular care with regard to their liability position when auditing a subsidiary which they know is going to be sold,' said Richard Swallow of Slaughter & May.
Yesterday a court ruled in E&Y's favour on the Freightliner case. The judge ruled that although there was a special audit duty on sales, the issue was whether E&Y was responsible for the way the subsidiary's employee had used the accounts having assured the buyer they were accurate.
E&Y was sued by Freightliner, ERF's parent company, in relation to fraud uncovered after ERF had been sold to German truckmaker, MAN.
Freightliner brought a case against ERF's former auditors, saying that it had been 'hoodwinked' by the frauds.
Further reading:
E&Y heads off £350m Freightliner claim
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