Who gets the blame in these dark times?
With the recession beginning to bite harder as job losses and company insolvencies increase, so the pressure starts to mount on auditors. Last month, the issue of the “going concern” status of companies was highlighted as a significant emerging problem. Listed companies are concerned that – in the current economic climate – when auditors’ prepare the compulsory going concern statement in annual accounts, the information could have a negative affect on the willingness of investors, suppliers and trade credit insurers to do business with them.
Consequently, auditors are burdened with the responsibility of ensuring that companies’ going concern statements are set in the context of the recession and don’t unnecessarily alarm those businesses with which they trade.
If this wasn’t enough of a headache for the profession, a warning was sounded this week that claims against accountants and auditors are set to increase due to the “deteriorating economic conditions and a subsequent rise in company insolvencies”. Marsh said that, though accountants and auditing firms “with a client base of non public limited companies and financial institutions” generally have better claims records than other professions, the current climate means they are not immune from law suits.
Marsh added that financially struggling clients may try to recoup their losses by holding their auditors liable for what they view as an unfair valuation of their assets. Meanwhile, it is anticipated that during the recession there will be an increase in the amount of fraud that is uncovered – auditors may be accused by their clients of being negligent in not noticing it earlier.
To make matters worse, Marsh also warned that clients may try to recoup penalties and interest payments associated with late tax returns from their auditors – in times when the economy is in better shape, this is generally overlooked.
As companies see their balance sheets start to look increasingly unhealthy, they will seek to point the finger of blame elsewhere. As a result, it seems that auditors will increasingly be at risk of being scapegoated for their clients’ financial problems.
Consequently, with the prospect of law suits flying around, it seems that lawyers may be among the few beneficiaries of the recession.
