11/09/07

By VERNON CLEMENT JONES, Senior Business Reporter

vernon@nasguard.com

The country's association of accountants is seeking to limit the liability of auditing firms in what it calls increasingly litigious times, but only if — it's quick to add — those professionals haven't screwed up.

That last stipulation had many members of the Bahamas Institute of Chartered Accountant scratching their heads yesterday as their former president unveiled the plan.

If Kendrick Christie wins over those doubting Thomases, and then the government, an amendment to the Public Accountants Act will be made allowing accounting firms to set themselves up as Limited Liability Companies.

That legal designation would essentially shield the personal assets of a firm's partners even if a complainant is successful in proving negligence.

"There is an increasing trend in litigation against auditors," said Christie, one of a host of speakers at an Accountants' Week seminar on Thursday. "You could have an audit fee of $5,000 yet face a $1 million lawsuit that would put you out of business."

BICA, however, has received only two complaints this year about its members.

Still, lawsuits directed against firms are a growing reality across all jurisdictions as corporations, themselves, come under fire for misfilings and the downright false reporting of financial statements.

Where a company has been cooking the books, the auditing firms may themselves have been deceived. But the clients who rely on them may increasingly be looking for the accountants themselves to shoulder the blame, charging they've simply dropped the ball in reconciling what are now exceptionally complex cases.

The BICA proposal would do nothing to limit the liability for the "misfeasant" firm, although that exposure would end just short of allowing claims on personal assets of anyone in its corporate structure.

The benefits of an LLC are more than evident to the big players in the Bahamian jurisdiction, said Christie. "The big-four and the medium-sized firms are really the ones, pushing (the amendments)."

The sheer size of the sums they deal in — their clients tend to be drawn from the country's corporate elite — make them more susceptible to the kind of million-dollar lawsuits that could devastate even a large firm.

It's the little guys among BICA's 450 members that may have little to gain from seeing the legislative change enacted and their association increase its regulatory responsibilities to include policing of LLC firms.

In fact, some are worried they may have something to lose if any of the costs associated with that new oversight role comes from their membership dues.

That's unlikely to happen with Christie's organization instead opting to charge LLC firms the requisite amount of fees to cover those expenses.

But the final decision on whether to even bring the proposed amendments forward for government sanction won't happen with an exhaustive consultation with BICA members and other stakeholders, he suggested.