Grant Thornton loses hedge accounting case in Supreme Court
Grant Thornton is due to pay £ 13.4million in damages to a building company after losing a Supreme Court case that clarified the extent of professional advisers’ legal duty of care to their clients.
The UK’s sixth-largest accounting firm was sued by Manchester Building Society, a former audit client, after Grant Thornton negligently informed the mutual in 2006 that it could prepare its annual accounts using blanket.
The construction company relied on the advice of Grant Thornton to grow its life mortgage business and entered into long-term interest rate swaps as a hedge against the cost of borrowing to fund this business.
However, the method masked the volatility of the construction company’s capital position and a mismatch developed between the negative value of the swaps and the value of the mortgages that the swaps were supposed to cover. Grant Thornton discovered the error in 2013 and the construction company had to restate its accounts and close its long-term swaps early at a cost of £ 32million.
A panel of seven UK Supreme Court judges unanimously ruled on Friday that the losses suffered by the Manchester Building Society fell within Grant Thornton’s duty of care to his client. He said reduced damages should be paid to the mutual to reflect his own negligence.
Anthony Taylor, a partner at Squire Patton Boggs law firm who represented the Manchester Building Society, welcomed the court’s simplification. “The legal test of the extent of duty in cases of professional negligence had become narrow and difficult to navigate,” he said.
Janine Alexander, partner at Collyer Bristow law firm, said: “This case comes against the backdrop of increasing attention to the duties of accountants, and in particular auditors, when examining the finances of large companies. companies. She added that it was “a reminder that courts and regulators expect more from them than a ‘tick boxes’ approach.
The decision is the latest legal blow to Grant Thornton. Patisserie Valerie’s liquidators are suing her for £ 200million for failing to detect suspected accounting fraud in the coffee shop chain. Last year, the Court of Appeal dismissed the accountant’s attempt to overturn a £ 22.3million ruling which held him liable in “the highest seriousness” negligence for his failure to expose fraud in of its audits of AssetCo, a fire truck rental company listed on Aim. .
Grant Thornton UK said he was “disappointed” by the decision.
“We have always accepted that our audits of the company for the years 2006-2011 were below the high standards that we seek and regret the errors in the financial statements of the company that arise from hedge accounting; that our audit team identified and brought to the attention of the Company and the Prudential Regulation Authority in 2013, ”he said.
David Harding, president of the Manchester Building Society, said: “We will now work with our advisers and regulators to establish what the judgment will mean for Manchester, our members and other stakeholders. “