The CoA dismissed an application for judicial review brought by accountancy firm Baker Tilly against a Financial Reporting Council (FRC) decision to pursue a formal complaint against it.
Baker Tilly had argued that the guidance used by the FRC in determining whether a case satisfied the public interest test for proceeding to a formal complaint was unlawful. It said that the guidance's reference to a “non-trivial failure” to act with professional competence did not match the definition of “misconduct” in the Accountancy Scheme, which sets out the FRC's disciplinary arrangements in respect of accountants.
The claim follows a formal complaint filed against Baker Tilly by the FRC, after doubts arose over the adequacy of audit work carried out by the firm for Tanfield Group in 2007 over its acquisition of a company called Snorkel.
Baker Tilly argued that courts generally impose a high threshold for professional conduct for disciplinary purposes and have often held that the word "misconduct" in other professional schemes requires more than mere negligence.
The case was thrown out by the High Court in 2015 and last week the CoA upheld that decision.
Professional negligence expert Michael Fletcher of Pinsent Masons, the firm behind Out-Law.com, said the CoA decision provided greater clarity for the future.
“The circumstances in which the FRC may successfully instigate disciplinary proceedings against accountants that it considers have been negligent may only arise relatively rarely, given the need for the FRC to show a realistic prospect of establishing “misconduct” and to meet the public interest test when delivering a formal complaint,” Fletcher said.
“Most negligence will not meet this standard. However, in any accountancy negligence claim, both claimants and defendants should consider whether disciplinary proceedings are also a possibility, and the test for this now has greater clarity,” he said.
While two of the appellate judges said the guidance should be rewritten, the CoA held that the factors in the FRC guidance had to be read in the context of, and were not inconsistent with, the Accountancy Scheme requirement and definition of “misconduct”.
The court said the FRC had performed the assessment exercise required of it appropriately.