Partner An unnamed firm
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How limited is your liability?

13th Jun 2019
Partner An unnamed firm
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AccountingWEB’s anonymous blogger says RSM and KPMG's big fines and severe reprimands should reminds accountants to take greater care over their conduct and performance. 

When many of us started out in the profession (or when our parents did), most accountancy practices were constituted as partnerships.

In those days, the idea that a partnership could have limited liability was not so much laughable as impossible.

I don’t think that many accountants were seriously concerned about losing their houses, although in theory that was exactly what could have happened had they made one or more bad business decisions.

To add to the worry, partnerships were set up in such a way that each of the individual partners had joint and several liabilities. This meant that if one of your fellows screwed up, not only would they pay the price but potentially every partner would be severely out of pocket as well.

If nothing else, this was very good news for insurers, at least until they found themselves having to pay out under professional indemnity policies.

With the advent of limited liability partnerships, which have quickly become the norm, I would guess that most partners sleep far more soundly at night.

While there is a danger that you might become liable for a personal error or transgression, in most cases there is no longer any need to worry about the activities of a rogue colleague.

That is correct up to a point, but as we all know, many firms seem to end up needing rescue packages to overcome problems that do not necessarily relate to client claims.

Poor trading, often accompanied by overly ambitious expansion, frequently have a damaging impact on accountancy practices that had often operated successfully for generations.

A quick look at recent disciplinary reports suggest that they could be another danger looming on the horizon for those of us who fail to maintain the high standards required of auditors, tax advisers and I imagine those who operate in other disciplines too.

In only a few weeks, ignoring investigations into the audit performance of two other firms which will come home to roost in the next few years, RSM/Baker Tilly has been fined £750,000, with two partners respectively fined £35,000 and £30,000, all parties being reprimanded. That should make every accountant stop and think.

However, KPMG has had a much rougher time having been caught out in connection with a couple of different audits that couldn’t pass muster. In one case, the firm was fined £6m and in the other £5m (reduced for early settlement) plus £500,000 of costs. Three partners involved each ended up with six-figure holes in their bank accounts. KPMG was severely reprimanded twice, while the partners each received similar treatment.

Unfortunately, this seems like the tip of a very large iceberg. I find it hard to imagine that any accountant would deliberately act in a fashion that leads to a severe reprimand, though even our profession has the odd bad penny.

Even so, when we read about fines of this magnitude, everyone in the profession surely needs to take even greater care over their conduct and performance since failure to do so could not only lead to stress, embarrassment and financial hardship but also the possibility of an early and ignominious end to a glorious career.

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