Liability of auditor for incorrect accounting treatment advice (UK)

The English Court of Appeal found that the plaintiff building society had not proved damages against its auditors who gave them incorrect information about how to treat long-term interest rate swaps on its balance sheet under the IFRS requirements. The swaps were not included on the balance sheet from 2005 till 2013, when they were swapped out, at a time when the swaps were ‘heavily out of the money’ (at a negative value due to the financial crisis at the time). They were broken at their fair value of £32.7 million plus transaction costs of nearly £300 000 for which the building society sued their auditors. The court found that the auditors had not taken responsibility for the entire transaction. Although their accounting advice was admittedly negligent, the auditors’ responsibility did not extend to responsibility for the entire 50 year lifetime of the mortgage/swaps business. The building society entered into the swaps for commercial…

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