Grant Thornton has failed in its bid to overturn record £22 million damages after it was found liable for negligence in its audit of fire equipment leasing company AssetCo. Judges threw out the accounting giant’s appeal, but reduced the damages by 25% to reflect AssetCo’s contributory fault.
At the original court hearing in early 2019, Grant Thornton was found liable for breaches of its professional duty in its audits of AssetCo’s accounts (See Brunel News, April 2019).
AssetCo used to provide fire engine equipment in London and Lincolnshire. Audits undertaken in 2009 and 2010 by Grant Thornton failed to spot dishonesty of the company’s management. This included misusing money, wrongly reporting profits, undertaking fraudulent related party transactions and forging documents.
Grant Thornton’s audit gave AssetCo a clean bill of health, but when the problems were revealed it blew a £235m hole in the company’s balance sheet. AssetCo only survived following a major restructure and by refocusing its business in the Middle East.
At appeal, Grant Thornton argued that it was not responsible for trading losses, general business decisions or fraud by management. However the court rejected this argument, ruling that AssetCo had paid out dividends which would not have been awarded had the books been inspected properly.
Grant Thornton accepted that the audit work fell short of the standards expected of the firm. “The quality of our audits is a key priority for us and we continue to invest significantly in our audit practice to ensure our audits deliver the necessary quality standards,” it said. The firm added that it was considering appealing the decision to The Supreme Court.
James Burgoyne, Director – Claims & Technical, Brunel Professions says that the ruling could encourage further negligence claims against auditors. “Audit firms need to make sure that their procedures and risk management standards reinforce appropriate scepticism, particularly when the auditors are under time pressure – not least as such pressure may have been deliberately manufactured by the fraudulent parties,” he added.
Brunel secures competitive professional indemnity insurance cover for financial services professionals. To find out more visit the Brunel website or call Mark Sommariva on 0203 475 3275.