Why did no one sue the accountants?

enry

Why did no one sue the accountants?
Let say a person received a lump sum payment 3 years ago and decided that they wanted to invest a large portion of these monies. They went and looked at all the options open to them and after scrutinising the accounts of Anglo Irish bank they decided that this was the best place to invest their monies. Let’s say this person based their decision solely on the accounts prepared by whatever very large and prestigious accountants firm responsible for preparing these accounts.
What prevents this person from suing obviously anglo itself the board of directors and the accountants. Accounts that were supposed to prepare accounts which gave a true and fair (if memory serves me correctly) picture of the company’s actual position. I’m only really interested here in way no one sued the accounts.

MrPudding

enry wrote: »

Why did no one sue the accountants?
Let say a person received a lump sum payment 3 years ago and decided that they wanted to invest a large portion of these monies. They went and looked at all the options open to them and after scrutinising the accounts of Anglo Irish bank they decided that this was the best place to invest their monies. Let’s say this person based their decision solely on the accounts prepared by whatever very large and prestigious accountants firm responsible for preparing these accounts.
What prevents this person from suing obviously anglo itself the board of directors and the accountants. Accounts that were supposed to prepare accounts which gave a true and fair (if memory serves me correctly) picture of the company’s actual position. I’m only really interested here in way no one sued the accounts.

Possibly a number of reaons, the main one likely to be an exclusion of liability in the contract with the accountants.

MrP

topper75

MrPudding wrote: »

Possibly a number of reaons, the main one likely to be an exclusion of liability in the contract with the accountants.

MrP

If there was such an exclusion, then the accountants weren't providing any more value than, let's say, me and my buddies going in there for a fortnight to read accounts and signing off saying that we believe them to be 'true and fair'!

I gather that highly paid professionals, be they legal, medical, financial, are highly paid because of the responsibility that comes with their work. An exclusion of liability undermines all justification of a high salary. Moreover, it undermines the dignity of the profession as a whole.

A tradesman is liable under law for shoddy workmanship. But the accountant brahmin class is somehow special? The OP's question occurred to me too when Northern Rock and the US situation came to light.

MrPudding

topper75 wrote: »

If there was such an exclusion, then the accountants weren't providing any more value than, let's say, me and my buddies going in there for a fortnight to read accounts and signing off saying that we believe them to be 'true and fair'!

Very few professionals will undertake work without exclusions of liability. One of the most famous cases for suing for purely economic loss is Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. This was interesting as before this suing for purely economic loss had never worked. The court held that, in this case the claimant could sue, and indeed would have been successful, had it not been for the exclusion clause. It might not sit right with you, but that is how it is.

There have been many other cases where the liability has been rejected for other reasons, and an exclusion clause has had no part in the failure. For example, it is perfectly possible for an accountant to give advise that results in a loss but was not negligent in any way. Why should he be liable for that loss?

Not know all the details I can only speak in generalities, but I would not expect this type of scenario to be simple.

topper75 wrote: »

I gather that highly paid professionals, be they legal, medical, financial, are highly paid because of the responsibility that comes with their work. An exclusion of liability undermines all justification of a high salary. Moreover, it undermines the dignity of the profession as a whole.

I suppose to an extent it does. But then if you are dealing with a professional who has a restrictive exclusion clause you don’t have to do business with him.

topper75 wrote: »

A tradesman is liable under law for shoddy workmanship. But the accountant brahmin class is somehow special? The OP's question occurred to me too when Northern Rock and the US situation came to light.

The tradesman doing his work is fully responsible for his work. He picks the tools, he picks the materials, he knows his level of skill, decides what needs to be done and does the work.

For someone like an accountant, no matter how good, it is possible for him to be mislead. It is not a simple matter of him being negligent.

And, at the end of the day, if you do not like someone’s terms of business, you can go elsewhere.

MrP

enry

MrPudding wrote: »

Very few professionals will undertake work without exclusions of liability. One of the most famous cases for suing for purely economic loss is Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. This was interesting as before this suing for purely economic loss had never worked. The court held that, in this case the claimant could sue, and indeed would have been successful, had it not been for the exclusion clause. It might not sit right with you, but that is how it is.

There have been many other cases where the liability has been rejected for other reasons, and an exclusion clause has had no part in the failure. For example, it is perfectly possible for an accountant to give advise that results in a loss but was not negligent in any way. Why should he be liable for that loss?

Not know all the details I can only speak in generalities, but I would not expect this type of scenario to be simple.


I suppose to an extent it does. But then if you are dealing with a professional who has a restrictive exclusion clause you don’t have to do business with him.

The tradesman doing his work is fully responsible for his work. He picks the tools, he picks the materials, he knows his level of skill, decides what needs to be done and does the work.

For someone like an accountant, no matter how good, it is possible for him to be mislead. It is not a simple matter of him being negligent.

And, at the end of the day, if you do not like someone’s terms of business, you can go elsewhere.

MrP

I agree with the above. But despite an exclusion clause. There is surely a professional responsibility on accountants to give a "true and fair" picture of a companies affairs. in the case of Anglo billions were going in and out of the accounts of the bank the accountants must have seen it; and if they didn’t I would think they were reckless in the way in which they audited the accounts.

Remember for example a lawyer is an officer of the court and as such has a responsibility nay a duty to uphold certain standards. If a law firm did not act in such a fashion and it was discovered litigation would follow why are the accounts not treated in the same way. Have these firm even been investigated by their own regulatory body.

Why were there no standards, why was nobody held accountable, why were the accountants not made to even answer for their lack of professionalism, Why are so many people whom have been destroyed financially not making noise?

Our man in Havana

So such an exclusion clause would protect an accountant even if clearly reckless advice was given?

topper75

MrPudding wrote: »

Very few professionals ... if you do not like someone’s terms of business, you can go elsewhere.

MrP

Thank you Mr. Pudding for your erudite and comprehensive response to my post. You have enlightened me, but unfortunately have failed to assuage my fears that a bunch of accountants signing off on accounts as being a true and fair view, whilst at the same time being protected by an exclusion of liability arrangement, is an utterly worthless pursuit from the point of view of the shareholders who rely on them.

As enry said, their own regulatory body needs to look at the worth of the service offered by the profession, especially when you have fatal liquidity arrangements and significant sums loaned to directors going underneath the radar.

Jim2007

enry wrote: »

Why did no one sue the accountants?
Let say a person received a lump sum payment 3 years ago and decided that they wanted to invest a large portion of these monies. They went and looked at all the options open to them and after scrutinising the accounts of Anglo Irish bank they decided that this was the best place to invest their monies. Let’s say this person based their decision solely on the accounts prepared by whatever very large and prestigious accountants firm responsible for preparing these accounts.
What prevents this person from suing obviously anglo itself the board of directors and the accountants. Accounts that were supposed to prepare accounts which gave a true and fair (if memory serves me correctly) picture of the company’s actual position. I’m only really interested here in way no one sued the accounts.

A couple of points:

- The directors of the company are responsible for the preparation and delivery of the accounts not the auditors

- The auditors only express an OPINION on the accounts as presented, it is not a confirmation that the accounts are in fact correct!

- The opinion expressed by the auditors is to the shareholders, not the general public

- The auditors are not responsible for detecting fraud etc... they are only required to do sufficient work to justify their opinion.

The bottom line is that the general public have no right to rely on the opinion expressed by the auditor and provided that the auditor followed all the guidelines etc... in reaching his opinion, the shareholders would have a very hard time making a case against the auditors as well.

Even writing to the auditor and telling them that you will be relying on the public accounts of the company when making your investment will not draw them into the loop.

There are several cases on this subject, which I have long forgotten but I'm sure you will find them among the course notes of anyone studying for a professional accounting qualification.

Jim.

enry

Jim2007 wrote: »

A couple of points:

- The directors of the company are responsible for the preparation and delivery of the accounts not the auditors

- The auditors only express an OPINION on the accounts as presented, it is not a confirmation that the accounts are in fact correct!

- The opinion expressed by the auditors is to the shareholders, not the general public

- The auditors are not responsible for detecting fraud etc... they are only required to do sufficient work to justify their opinion.

The bottom line is that the general public have no right to rely on the opinion expressed by the auditor and provided that the auditor followed all the guidelines etc... in reaching his opinion, the shareholders would have a very hard time making a case against the auditors as well.

Even writing to the auditor and telling them that you will be relying on the public accounts of the company when making your investment will not draw them into the loop.

There are several cases on this subject, which I have long forgotten but I'm sure you will find them among the course notes of anyone studying for a professional accounting qualification.

Jim.

Thanks for the response, however, I can’t understand why the existing shareholder did not sue them, they based their decision to retain their share on the professional opinions of the accountants.

What good is an accountant’s opinion?

Why can they produce below standard work, which is obviously going to be relied upon and still remain untouchable?

Part of the reason I asked this question in the first place was because I know a person whom was part of a team auditing Anglos accounts and he has now gone to work for NAMA which personally I think is a joke, however I asked him how did they not cop what was happening in there. He said maybe they did and maybe they asked the regulator if the practices in Anglo were ok and maybe the regulator said they were and perhaps they relied on Mr. Neary's advice.

I suppose I maybe just expected more from professionals

SoulTrader

topper75 wrote: »

As enry said, their own regulatory body needs to look at the worth of the service offered by the profession, especially when you have fatal liquidity arrangements and significant sums loaned to directors going underneath the radar.

Rest assured that the various accountancy regulatory bodies are very strict on their members, and often carry out on-site review of auditing firms, to test their practices, standard of work performed and file-keeping.

enry wrote: »

What good is an accountant’s opinion?

Why can they produce below standard work, which is obviously going to be relied upon and still remain untouchable?

Auditors are by no means untouchable - you just need to look at the collapse of Arthur Andersen, previously one of the Big 5 auditing firms, for evidence of that. Their collapse was attributed to their work done in connection with the audit of Enron.

Incidentally, Enry, do you know when your friend bought the Anglo shares? I know that for the 15 month period ending December 31, 2009, they posted a €12bn loss, and for the year ended September 30, 2008, they made a profit, but by the time the accounts were published, the Lehmann Brothers collapse had already happened, so there was certainly market turmoil of which your friend would have been aware. Would be interested to know so I could look back and read the audit reports for the year(s) that they based their judgement on.

enry

SoulTrader wrote: »

Rest assured that the various accountancy regulatory bodies are very strict on their members, and often carry out on-site review of auditing firms, to test their practices, standard of work performed and file-keeping.



Auditors are by no means untouchable - you just need to look at the collapse of Arthur Andersen, previously one of the Big 5 auditing firms, for evidence of that. Their collapse was attributed to their work done in connection with the audit of Enron.

Incidentally, Enry, do you know when your friend bought the Anglo shares? I know that for the 15 month period ending December 31, 2009, they posted a €12bn loss, and for the year ended September 30, 2008, they made a profit, but by the time the accounts were published, the Lehmann Brothers collapse had already happened, so there was certainly market turmoil of which your friend would have been aware. Would be interested to know so I could look back and read the audit reports for the year(s) that they based their judgement on.

I don’t know anyone who purchased shares in Anglo myself I was just using it as an example, however, everyone in this country will suffer as a result to a greater or lesser degree for what happened in that bank.

The example of Enron just proves one thing that in the good old US of A if your actions are unlawful or reckless or perhaps even simply negligent and others suffer as a repercussion you pay the consequence.

Do you think the wheels of just will ever turn in this country and just for clarification I’m referring mainly to the lads running the banks. I have not seen any of these big boys in this country lose their homes or go to jail.

I’m not out to get the accountants, i simply could not understand way nobody sued any anyone.

SoulTrader

enry wrote: »

I don’t know anyone who purchased shares in Anglo myself I was just using it as an example, however, everyone in this country will suffer as a result to a greater or lesser degree for what happened in that bank.

The example of Enron just proves one thing that in the good old US of A if your actions are unlawful or reckless or perhaps even simply negligent and others suffer as a repercussion you pay the consequence.

Do you think the wheels of just will ever turn in this country and just for clarification I’m referring mainly to the lads running the banks. I have not seen any of these big boys in this country lose their homes or go to jail.

I’m not out to get the accountants, i simply could not understand way nobody sued any anyone.

Ok, sorry, I thought you were referring to a specific person.

If you're referring to the illegal payments made by directors to themselves, then yes, you could challenge an auditor why they didn't find evidence of that. But even then, there's no guarantee you could win in court against them in that respect, if their audit sampling was found to be reasonable - they can't test every transaction unfortunately.

As for the banks themselves, I would love to see those who profited being hauled over the coals for their negligence / recklessness. I don't see it happening though, unfortunately. A financial system should work for the benefit of the economy, serving the economy and its people - however, in Europe and the US now, the financial system is self-serving. Greed is promoted through astonishingly high bonus payments to bankers when profits (even just paper profits based on inflated property values from the property bubble) are high, yet, when losses are made, there is no corresponding "punishment". It is a one-sided coin and unless it changes, I see more of it happening in the future. If the banks know they can get away with it, that they will be bailed out by taxpayer money regardless of the risks they assume, then that creates a moral hazard where the banks will continue to be reckless in future.

That's looking at it from an economic point of view. From a political point of view, I fear that the politicians in this country don't have the spine to tackle the major banks and bring charges against them.

InReality

Could anyone explain what is the main difference between the laws in the US and the laws here in regards to suing the accountants ?

I know regulatory agencies can be more active over in the US , esp some DA's and that class action suites can be made.

But is there a simple piece of law that could be brought in in Ireland to help with this area ?

Jim2007

enry wrote: »

Thanks for the response, however, I can’t understand why the existing shareholder did not sue them, they based their decision to retain their share on the professional opinions of the accountants.

What good is an accountant’s opinion?

Why can they produce below standard work, which is obviously going to be relied upon and still remain untouchable?

Part of the reason I asked this question in the first place was because I know a person whom was part of a team auditing Anglos accounts and he has now gone to work for NAMA which personally I think is a joke, however I asked him how did they not cop what was happening in there. He said maybe they did and maybe they asked the regulator if the practices in Anglo were ok and maybe the regulator said they were and perhaps they relied on Mr. Neary's advice.

I suppose I maybe just expected more from professionals

I think the first thing to understand is that the auditor can not check every single transaction, otherwise it would take forever and cost a small fortune!

So all the auditor is called upon to do is express his opinion on what the directors report in the accounts and to do sufficient work to justify that opinion.

So lets say the directors tell an auditor that they have a portfolio of properties worth €20b to back up the mortgages they are carrying. Most likely he will do some or all of the following to reach is opinion:

- Sample the documentation for say 2000 of the loans to ensure that it is correct (lets say if 95% of it is right he is happy)
- Visit a selection of properties to ensure the really do exist
- Review the valuation methods being used and confirm with market experts that they are reasonable
- Examine the checks and balances that the directors have put in place to detect fraud and confirm that they are working and so on

If after all this and maybe more the auditor has found no issues then it would be reasonable for him to conclude that things are OK, If however he found some issues to raise his suspicions that something was wrong he would be obliged to follow it up.

Just because something went wrong and auditor failed to catch it does not mean that he did poor or shoddy work. But what you can be sure of is that the relevant bodies will be taking a close look at what the auditors did, although it may not be done in public.

I got out of the accounting game 20 years ago, but when I was in the game I did most of my work in the insolvency and liquidation area and I can assure you that we always took a close look at what had been done on the audit of the companies we were winding down to see if we could bring a case against them.....

Good luck

Jim.

Jim2007

enry wrote: »

The example of Enron just proves one thing that in the good old US of A if your actions are unlawful or reckless or perhaps even simply negligent and others suffer as a repercussion you pay the consequence.

Actually this is not correct, Andersons and the others fell because they knowingly committed a fraud, it was not a case of shoddy audit work that was the issue there! If they had stuck to the audit and not put their fingers in the other stuff they would have been fine.

Jim.

Jim2007

InReality wrote: »

Could anyone explain what is the main difference between the laws in the US and the laws here in regards to suing the accountants ?

I know regulatory agencies can be more active over in the US , esp some DA's and that class action suites can be made.

But is there a simple piece of law that could be brought in in Ireland to help with this area ?

When it comes to accounting and reporting regulations, the EU is far stricter than the US and the best evidence of this is that NYSE and the SEC in the US are starting to force US companies to report according to International Standards (IFRS) rather than US standards, IFRS is very much and EU thing.

The banking system did not fail because of some weakness in the accounting or auditing side, if failed due to lack of regulation on the banking side and because some of the products being developed and pushed by the banks were so complex that even they did not understand them!

In my opinion the rules being proposed by the EU and the stuff coming out of German concerning hedge funds is a big step in the right direction.


Jim

enry

I see someone is now suing the accountants

nuac

Covererd in today's papers.

The big accountancy firms and their insurers trenchantly defend these claims.

Victor

enry wrote: »

I see someone is now suing the accountants

Perhaps someone is actually suing the auditors?

Carawaystick

Victor wrote: »

Perhaps someone is actually suing the auditors?

Like the people who actually hired them :rolleyes:

Jim2007

enry wrote: »

I see someone is now suing the accountants

Well from what I've read it's purpose is to act as a reset button on the statute of limitations rather than a genuine claim at this stage. Also, we don't actually know the nature of the claim, but I expect that it is unlikely to be in respect of the audit itself as the bank would find it hard to justify it's standing in such a claim, since the auditors are appointed by the shareholders and not the company itself.

It is common for the auditors to do some other work for their clients in the course of preparing for an audit and I would expect that the claim would be in this area, but only time will tell.

Victor

Carawaystick wrote: »

Victor wrote: »

Perhaps someone is actually suing the auditors?

Like the people who actually hired them :rolleyes:

My point was that not all accountants are auditors and not all auditors are accountants.

Marcusm

Jim2007 wrote: »

Actually this is not correct, Andersons and the others fell because they knowingly committed a fraud, it was not a case of shoddy audit work that was the issue there! If they had stuck to the audit and not put their fingers in the other stuff they would have been fine.

Jim.

Unfortunately this is a misconception too. Andersens failed because of a humongous fall off in confidence in their work following their deep association with Enron and in particular in relation to designing or opining on structures which flattered their financial position - transactions which included treating similar transactions wholly differently depending on whether Enron was the buyer or seller - very similar issues arose with Worldcom. However, to the extent that there was subsequent litigation it was determined that there was no broad ranging misfeasance at Andersen; one court having held that while the accounting clearly flattered to deceive it was entirely correct according to the US rules based approach (as opposed to IaSB's principles based approach).

that's why you don't hear of many bankrupt Andersens partners.

Ireland, however, went through 5-10 years of groupthink where everyone seemed to think that land came more valuable without O'do reason and that ay should rise accordingly. The focus on suing EY sees o relate to the non disclosure of Ftzpatrik's loans. It'll be interesting to see how that gets on. in the meantime, the Anglo directors charged with technical breaches of the Companies Act over the Quinn/Mapls 10 loans have a case to answer even if they tred their best and got legal advice at the time.

Marcusm

I'm surprised that this discussion has proceeded thus far without mention of Caparo.

http://en.wikipedia.org/wiki/Caparo_Industries_plc_v_Dickman