Grant Thornton has been hit with the UK’s largest damages payment for negligent audit work. Fire and emergency services provider AssetCo has been awarded over £20 million as a result of negligent audits in 2009 and 2010.
AssetCo was a business which provided and maintained fire engine equipment in London and Lincolnshire. In audits undertaken in 2009 and 2010 Grant Thornton failed to identify that the company’s management had been acting dishonestly. This included misusing money, wrongly reporting profits, undertaking fraudulent related party transactions and forging documents.
AssetCo was left with a £235m hole in its balance sheet. In 2011 a shareholder rebellion resulted in the appointment of a new executive chairman. Insolvency was avoided by the company agreeing a scheme of arrangement with the company’s creditors. It subsequently secured refinancing and restructured to focus on operations in the Middle East.
The new management sought £30 million damages from Grant Thornton for negligent audit work. Grant Thornton accepted it had been negligent but claimed there had been no loss as a result of its failings. It argued that the company would have become insolvent in 2009 or 2010 if the audit had revealed the true extent of the company’s financial position. It claimed that AssetCo was better off as result of its failings as it had managed to restructure and survive.
Mr Justice Bryan rejected Grant Thornton’s argument, branding its work as a “flagrant breach of professional standards” and revealing failures “of the utmost gravity”. He awarded AssetCo in excess of £20 million, reducing the total damages claimed to take account for the dishonesty of the company’s previous management.
Grant Thornton had earlier been fined £3.5 million by the Financial Reporting Council in 2017 for failings in its audit work. The firm’s retired audit partner was also fined £200,000 personally and struck -off for three years.
“Auditors are facing significant scrutiny as a result of high-profile accounting scandals,” said James Burgoyne, Director – Claims & Technical, Brunel Professions. “This could lead to more claims of professional negligence against firms if failings in audit work are revealed. Firms need to be confident of their staff, work protocols and risk management in this area.”
Brunel secures competitive professional indemnity insurance cover for accountants. To find out more call Mark Sommariva on 0203 475 3275.