Accountants face the prospect of multimillion pound compensation claims from the Law Society and other regulatory bodies as a result of a landmark Court of Appeal decision which has established a ‘whole new area of liability’ for the profession.
The case, involving KPMG, has prompted calls for the English ICA to enter talks with the Law Society to limit the potential damage.
With new legislation on its way to limit the liability of partnerships, the case will only add urgency to the desire for measures to reduce the risk faced by accountancy firms.
Concerns are also growing that the decision will have broader implications for the relationship between accountants and other regulatory bodies.
A solicitor at the heart of the KPMG case said: ‘It may be a step along the way.’
The alarms were sounded after the Court of Appeal ruled in a case between KPMG and the Law Society last week.
The outcome allows the society to pursue its claim against KPMG for negligence over its reports on the accounts of Sussex law firm Durnford Ford which was found to be defrauding clients in 1992.
The society has paid £8.5m in compensation to clients of the law firm and is seeking to make a claim against KPMG in return.
Last week the court ruled accountants who prepare annual reports owe a duty of care to the compensation fund and opened the door for the claim to continue against the Big Five firm.
Stuart Hall, a partner at Barlow Lyde and Gilbert, said: ‘As solicitors we all chip into the compensation fund, but I don’t think anybody ever believed that there would be recourse to the accountants.’
But some lawyers are suggesting the duty of care was widely known and there is disbelief among accountancy firms that KPMG chose to fight the issue.
Even so, the case also raises questions about other regulatory bodies such as the Financial Services Authority and the Investors Compensation Scheme.
Lawyers believe that more compensation schemes are bound to emerge which would require testing.
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