Accountancy firm Fairhurst & Co. signed off the audit of the accounts of Happy Day Holiday Group Ltd, a group of travel agents, whose accounts showed sound financial health. Within months of this Happy Day Holiday Group Ltd had collapsed.

Legal proceedings have begun and Franco’s Bank have sued Fairhurst & Co. for negligence because they say that Fairhurst & Co should have identified the severity of Covid-19 on Happy Day Holiday Group Limited.

The claim of negligence was based on the fact that Fairhurst & Co had failed to discover fraudulent overstatements of the group’s true financial position.

Fairhurst & Co had included a clear note within their audit report that “it is management’s responsibility to addresses the going concern of Happy Day Holiday Group, and they held no responsibility to anyone else for their audit work”.

Required:

1:What is the current legal position regarding negligence by professionals in the UK and how has this developed over the years?

2:Are Franco’s Bank likely to be successful in their law suit, and why?

3:You need to refer to the legislation and at least 6 relevant cases including 3 from the last 10 years.

Answer rating: 100% (QA)

Professional negligence results from a duty of care A duty of care arises when a party provides a professional service or an advice to another in a pr... View the full answer