Question

Compare the potential liability of accountants with that os other professions including pharmacists, engineers, architects, and other professions.

Answer 1

"Professional" is the term generally used to describe people whose occupation demands extensive academic training like lawyers and accountants, professional also applies to business trades that don't require a degree but do demand highly specialized skills. Graphic and website designers are examples of the latter. Professionals, such as doctors, lawyers and accountants, have long been held highly accountable for the consequences of their decisions.

In recent years there have been a number of cases where substantial sums have been claimed as damages for negligence against accountants and auditors. In a number of cases it appears that the claims may have arisen as a result of some misunderstanding as to the degree of responsibility which the accountant was expected to assume in giving advice or expressing an opinion. It is therefore important to distinguish between:

a) disputes arising from misunderstandings regarding the duties assumed; and

b) negligence in carrying out agreed terms.

An accountant may be liable for negligence, not only in contract but in tort, if a person to whom he or she owed a duty of care has suffered loss as a result of the accountant’s negligence. An accountant will almost always owe a duty of care to his or her own client, but that duty is likely to be coextensive with his or her contractual duty. In practice, the possibility of liability in tort will be important mainly in the context of claims by third parties. Liability will arise when the work in question is of a kind which it was reasonable for the third party to rely on for that person’s particular purpose. If these conditions are satisfied, the third party is a person whom in the eyes of the law the professional person ought to have in mind in applying his or her skills to the work in question.

Although it is not possible to guard against every circumstance in which an accountant or auditor may run the danger of incurring liability for professional negligence, the following matters should be borne in mind:

a) Before carrying out any work for a client, a member should ensure that the exact duties to be performed, and in particular any significant matters to be excluded, have been agreed with the client, in writing, by a letter of engagement or otherwise. If the accountant is asked to perform any additional duties at a later date, these should also be defined in writing.

b) In giving ‘snap’ advice at the request of a client, or advice which must necessarily be based on incomplete information, a member should make it clear that such advice is subject to limitations, and that consideration in depth may have led him or her to revise the advice given.

c) When publishing documents generally a member may find it advantageous to include in the document a clause disclaiming liability.

d) When submitting unaudited accounts or other unaudited financial statements or reports to the client, a member should ensure that any special purpose for which the statements or reports have been prepared is recorded on their face, and in appropriate cases, should introduce a clause recording that the report or statement is confidential and has been prepared solely for the private use of the client.

e) It should be recognised that there are areas of professional work (for example when acting as an auditor under the Companies Act 1985) where it is not possible for liability to be limited or excluded, and that there are other areas of professional work (for example when preparing reports on a business for the purpose of being submitted to a potential purchaser) where, although such a limitation or exclusion may be included, its effectiveness will depend on the view which a court may subsequently form of its reasonableness.

f) When giving references to a third party with regard to future transactions (eg the payment of rent), a member should state that his or her opinion is given without financial responsibility on the member’s part.

g) Where the circumstances appear to warrant it, because of the complexity of an assignment or otherwise, the member should advise the client that it is considered desirable to take specialist advice. In certain circumstances, it may be appropriate for the member either to consult another accountant or to suggest to the client that the advice of a member of another profession should be sought.

h) Where a member acts as receiver, he or she should endeavour to ensure that the person appointing him or her executes an appropriate letter of indemnity in the member’s favour or should include appropriate exclusions of the member’s personal liability in contracts with third parties. A member should also arrange for additional professional indemnity insurance cover of a realistic amount, and should ascertain from his or her brokers whether or not cover is provided for the special risks involved.

The professions evaluated here—law (lawyers), accountancy (certified public accountants [CPAs]), architecture, and engineering—each differ from medicine in having clients or employers rather than patients as the focus of concern. The difference is not simply one of terminology. A client or an employer is not necessarily human. Many are corporations or governments. Even the human clients differ from patients. With some exceptions (e.g., clients accused of crimes), they are typically healthy, calm, and relatively well-informed about the service to be provided; they are seldom as vulnerable as a physician’s patient typically is. A client or employer simply asks that something be done (a building put up, a machine designed, a contract drawn, or a company audited). Emergencies are much rarer in these professions than they are in medicine, and time to think through a problem is more plentiful. Because of their relative sophistication and bargaining strength (compared both with patients and with the professional in question), clients or employers need not readily consent to accept the conflicts disclosed to them; they are more likely to insist that a conflict be avoided or resolved or to use the conflict to better the bargain. In other words, law, ac counting, architecture, and engineering are professions in which one might expect much less concern with conflicts of interest than in medicine.

All professionals are liable to malpractice done on part of their profession. Malpractice is negligence on the part of profession like a pharmacist is liable to his patient. He is supposed to provide correct and adequate medical treatment to the patient.