Holding an accountant liable starts with the question of which engagement they carried out. A compilation engagement, review engagement, audit engagement and advisory engagement have different purposes. You must also substantiate which standard was breached and which damage arose precisely as a result.
Incorrect annual accounts: which engagement were they based on?
When compiling annual accounts, the accountant processes information into financial statements. A compilation report does not offer the same assurance as an auditor’s report. Even so, a compiling accountant cannot simply ignore obvious inaccuracies or inconsistencies. What should have been investigated further or discussed depends on the specific information and the professional rules.
With an audit engagement, one of the things examined is whether sufficient appropriate audit evidence was obtained. The fact that a fraud comes to light later does not automatically prove a deficient audit. The work must be assessed in the light of the risks and signals that were recognisable at the time.
Examples of possible errors
- Insufficient response to striking discrepancies or missing supporting evidence.
- Incorrect treatment of an important item in breach of the applicable financial reporting rules.
- Careless advice on a transfer, valuation or financing.
- Failing to make sufficiently clear which work a report covers and what its limitations are.
- Failing to adequately warn a known user when relying on information may be incorrect or dangerous.
These examples are questions for investigation, not automatic grounds for a claim to be awarded. The file must show what the accountant knew, what they did and what a careful fellow professional would have done.
Liability towards a third party as well?
A buyer, financier or shareholder does not always have their own agreement with the accountant. A possible duty of care towards a third party is assessed in the light of all the circumstances. Relevant factors may include the purpose for which the report was prepared, who was a foreseeable user, which limitations were stated and what reliance was reasonable. A duty of care towards one third party does not automatically mean the same duty of care towards every other reader.
How do you calculate the damage?
With a purchase based on financial information, it must be examined what you would have done with correct information. Would you not have bought, have paid a different price or have negotiated additional security? That must be substantiated with specific documents. Poor business results later on do not automatically constitute the damage caused by the accountant.
With an error in the annual accounts, reasonable remedial costs may be relevant. With an advisory error, tax or transaction consequences may play a role. Separate damage caused by the advice from market developments, your own business decisions and damage that would also have arisen with careful conduct.
Accountantskamer or civil court?
Disciplinary law for accountants reviews the practice of the profession. The Accountantskamer (Disciplinary Board for Accountants) does not award civil compensation. A ruling may, however, carry weight in a discussion about liability. The civil court independently assesses matters such as damage, causation and the content of the legal relationship. A complaints procedure does not automatically safeguard the limitation period for your claim for damages.
These documents help with the assessment
- Engagement letter and general terms and conditions.
- Annual accounts, reports, advisory reports and versions of them.
- Correspondence about striking items, missing documents and warnings.
- Transaction documents, financing terms and your decision-making.
- Remedial reports and a specific comparison of the damage.
Frequently asked questions
Are incorrect annual accounts enough for liability?
No. The engagement, the care taken in the work, the damage and the link between them must be examined.
Can a shareholder always claim directly?
No. Besides the duty of care, there is the question of who suffered the damage. Damage suffered by the company is not automatically a claim of the shareholder in their own right.
Where can I read about errors in tax returns?
See errors in accounts and tax returns and errors in tax advice.
Sources
Amsterdam Court of Appeal 18 January 2022, ECLI:NL:GHAMS:2022:141 on the duty of care, the engagement and tax advice; Accountantskamer for the disciplinary route.
Time limits, costs and your next step
Report the suspected error in good time and in concrete terms. A complaint and interrupting the limitation period are different acts. For claims for damages, a period of five years after actual awareness of the damage and of the liable person often applies, but special rules and other time limits may apply. Have the time limit for your own file checked.
Responsible lawyer: Onur Arslan. Contact us with a brief description and any urgent deadline. Discuss in advance the scope and costs of the investigation, possible expert costs and litigation risks. Recovery of all costs is not guaranteed.
See also the general professional liability guide for a step-by-step plan, a file checklist and an explanation of damage, causation and complaints procedures. Legal basis: Book 7 of the Civil Code (duty of care), Book 6 of the Civil Code (compensation and the duty to complain in time) and Book 3 of the Civil Code (limitation and interruption).
