Improper record retention could lead to negligence lawsuits for accountantsPosted by Stephen Heath on August 22, 2010 in News, Professional Indemnity Insurance | Leave a comment |
Professional negligence lawsuits can arise at any point during the client-service provider relationship, even after a contract has ended. Most businesses who provide a service are at risk of being sued, but the threat is massively increased for those in the financial industry.
Accountants and auditors often have to face professional negligence lawsuits, as the nature of their industry is a risky and volatile one and mistakes can be easily made. If something goes wrong or money is lost, the firm who did the sums is often the first to be blamed.
This is why many accountants and auditors take the sensible precautionary measure of taking out professional indemnity insurance, so that the costs of legal defence are taken care of. However, this alone may not be enough.
A case in the US in 2009 demonstrates this, as the issue in question was record retention. Graphic arts manufacturer Magruder Color Company, Inc. sued financial services firm Deloitte and Touche USA LLP for professional negligence over the tax, accounting and auditing services they provided.
Magruder claimed that the defence made ‘miscalculations’ during their contract, but improper record retention on the part of Deloitte meant that they were unable to discredit Magruder’s allegations with the proper supporting documents. The case has subsequently been dragged out a great deal longer – resulting in greater legal fees on both sides – and the outcome remains uncertain.