Arbitration · Professional liability
Liability of an accounting firm: ¢100M released
¢100M were claimed against an accounting firm for an audit that, according to the claimant, failed to detect irregularities. The defence delimited the scope of the engagement and showed that the information existed outside the records reviewed.
The dispute
The claimant argued that the audit should have detected irregular handling and that, having failed to do so, the firm was liable for the entire loss.
What was at stake
¢100M and the professional standard: what an audit is expected to do and how far the duty to detect concealed fraud extends.
The strategy
The audit engagement letter, the work programmes and the evidence collected were reviewed. The central point was showing that the decisive information was not in the records and was obtained through channels outside the scope of the engagement.
The outcome
The accounting firm was released from liability.
In professional liability, the case is won or lost in the engagement letter: the written scope is the limit of the duty.