The professional liability of accountants is a subject that is receiving more and more attention, partly because of the increasing complexity of financial reporting and its importance within the business community. In the past, the accountancy sector has been subject to critical reviews. Various recommendations were made to improve the quality of audits. These developments underline the importance of sound professional indemnity insurance for accountants. Such insurance is not only a requirement to limit the risk of financial losses, but also serves as a safety net for the consequences of possible mistakes that may be made in the course of the profession. It is essential that accountancy firms, both large and small, are adequately insured to safeguard both the continuity of their services and the trust of their clients and the public. This page describes the situation in the Netherlands.
Duty of care of accountants and the Vie d'Or ruling
In the landmark Vie d'Or ruling, the Supreme Court of the Netherlands (Hoge Raad) set out important guidelines on the liability of accountants. This ruling specifies when auditing accountants can be held liable for damage suffered by shareholders and creditors. The case underlines the essential role of accountants in safeguarding transparent and reliable financial reporting. It is still a very important case for anyone who wants to assess the liability of accountants.
In this case, the Supreme Court stressed that accountants not only have a responsibility towards the legal entity they work for, but that their work is also of fundamental importance for public confidence. It follows that accountants must act with care in line with what may be expected of a reasonably competent and reasonably acting professional, taking into account the interests of third parties who rely on their information. This ruling therefore paved the way for further damages claims against accountants.
Limits to the duty of care of accountants
In principle, the accountant only owes a duty to perform their tasks with care towards their client, since their tasks are not directly aimed at informing or protecting third parties. Exceptions to this rule may arise if it can reasonably be expected that third parties will gain access to, or have a specific interest in, the information the accountant has prepared, such as a financial report that forms the basis for investment decisions. In such cases, the accountant can be held liable by third parties, unless they explicitly take measures to limit their duty of care.
This can be done, for example, by stating explicitly in the report that the document is intended solely for the client and is not intended to be used by third parties as a basis for decisions. The Supreme Court stressed that an accountant cannot automatically be expected to foresee the possible interpretation or use of their reports by third parties. This is certainly the case if they have communicated clearly about the purpose and the intended recipients of their report.
Professional error and (contractual) liability of the accountant
The accountant has a contractual relationship with their client and must comply with the agreements made. If they fail to do so, this can result in an obligation to pay compensation. The same applies if they make a professional error while carrying out their tasks. An example of a professional error is failing to discuss essential financial information with the client. In practice, the accountant can be held responsible not only for the direct financial loss suffered by the client, but also for additional costs, including legal fees incurred in connection with the proceedings. The costs incurred in disciplinary proceedings are generally not regarded as recoverable costs, except in special circumstances.
Civil or disciplinary action against an accountant
Civil liability focuses on compensating damage that a client or third party has suffered as a result of the accountant's acts or omissions. This results in an obligation to pay compensation and is usually settled by the civil court or a specific disputes committee, such as the Disputes Board (Raad voor Geschillen). This Board issues binding opinions and can decide, for example, that an invoice does not have to be paid. Disciplinary liability, on the other hand, is aimed at upholding professional standards and trust in the accountancy profession. Complaints about professional conduct are assessed by the Accountancy Division (Accountantskamer), the disciplinary body that can impose disciplinary measures. These proceedings are focused on the general interest of proper professional practice and on protecting and/or restoring trust in the accountancy profession.
Contractual and societal duty of care of accountants
The rules of conduct and professional rules for accountants are crucial in determining their liability when carrying out their tasks. These rules, as laid down in the Regulation on Rules of Conduct and Professional Practice for Accountants (Verordening gedrags- en beroepsregels accountants, VGBA, article 2), set out the fundamental principles of professionalism, integrity, objectivity, professional competence and due care, and confidentiality that every accountant must comply with. These principles serve as the guideline for accountants in carrying out their work, including the audit of annual accounts and the performance of specific engagements. Breach of these rules can lead to disciplinary sanctions, such as warnings, reprimands or, in serious cases, even suspension or removal from the register.
In the civil law context, where compensation plays a role, the distinction between clients and third parties is important. Accountants have a contractual duty of care towards their clients, based on the expected professional competence. Towards third parties, on the other hand, there may be a societal duty of care, especially when performing statutory tasks. In addition, a third party will mainly have to rely on tort (onrechtmatige daad).
When assessing whether an accountant has acted in breach of their contractual or societal duty of care, the applicable rules of conduct and professional rules are in any case not the only thing taken into account. The nature of the standard breached, the seriousness of the breach, the measures taken by the accountant and the degree of danger the breach entails are also taken into consideration.
Accountant's error and the consequences for directors' liability
The question arose earlier whether a director can rely on the error of their accountant to escape liability, for example in the case of tax debts or a bankruptcy. The Supreme Court has previously made it clear that, although the company is primarily liable for its own debts, there are situations in which the director can be held personally liable. This is particularly the case if there is improper management or mismanagement.
If tax debts arise as a result of the accountant's negligence, such as failing to file a tax return on time, and the director has fulfilled their duty to provide information by supplying all relevant documents to the accountant in good time, the gross negligence of the accountant cannot, according to case law, be attributed to the director (but it can be attributed to the company). In such cases, the director can defend themselves by showing that they personally are not to blame, which allows them to 'hide' behind the accountant's error.
Legal expenses insurance and action against an accountant
Legal expenses insurance may well be very useful for clients who are considering taking legal action against an accountant for alleged professional errors or negligence. This insurance covers the costs of legal assistance and legal proceedings, costs that can run up considerably. Before you call in legal help, it is crucial to read the policy conditions carefully or to contact the insurer to establish the exact cover and any exclusions. Most Dutch insurers offer their website and policy documents in Dutch only. Bear in mind that an excess often applies. This means that part of the legal costs is at your own expense.
Compulsory professional indemnity insurance for accountants
The accountant is required to take out professional indemnity insurance (BAV); according to Ondernemersplein (the Netherlands Chamber of Commerce, KVK), this obligation follows from the law or from the rules of the professional body. This is the only way to guarantee the client that they are protected against the consequences of a professional error by the accountant or by one of their employees. This insurance covers various matters, for example liability for an error in annual accounts or liability for an error in a report. Damage caused by intent or recklessness, directors' liability, damage resulting from an infringement of intellectual property rights and personal injury are generally not covered. The latter is, however, covered by business liability insurance (AVB). The obligation to take out professional indemnity insurance only applies to accountants, not to bookkeepers and tax advisers. Of course, this insurance is still very useful for these last two professionals.
Frequently asked questions about the liability of the accountant
Accountants play an important role in the financial and business landscape. They do this, among other things, with their expertise in bookkeeping and financial reporting. Their work contributes to the reliability of financial information, which is essential for investors, management, shareholders and regulators. Because of the impact of their work, understanding the liability of accountants is very important both for these professionals themselves and for those who use their services.
What do accountants do?
Accountants are responsible for preparing and checking financial statements, providing tax advice and carrying out audits. They also provide strategic advice to businesses on financial efficiency, tax optimisation and compliance.
Is an accountant the same as a bookkeeper?
No, an accountant and a bookkeeper fulfil different roles. Bookkeepers mainly deal with the day-to-day management of financial transactions and the administration. In practice, they will also advise on tax and financial matters. Accountants, however, have a much broader range of tasks. They are responsible for audits, tax advice and financial planning and analysis. For certain matters, it is a legal requirement to engage an accountant.
When is an accountant required to pay compensation?
An accountant is required to pay compensation if it can be shown that there has been a professional error leading to financial loss. This can happen if the accountant has been negligent, has not acted with the care that may be expected of a reasonably competent professional, or has acted in breach of the applicable rules of conduct and professional rules.
Is an accountant liable towards third parties?
Yes, accountants can also be liable towards third parties, such as investors or creditors. This is the case if their work was carried out on the expectation that these third parties may rely on the information and damage arises from inaccuracies in this information. An accountant can also be liable towards third parties in the case of a tort.
What does liability insurance for an accountant cost?
The cost of this insurance depends on several factors, such as the size of the practice, the nature of the services provided and the risk profile. It is advisable to request several quotes and compare them, because each insurer applies its own rates.
My accountant makes mistakes: what can I do?
If you think your accountant has made a mistake that has caused financial loss, it is best to first talk to the accountant or the accountancy firm to reach a solution together. If this does not lead to a satisfactory result, you can start disciplinary proceedings and/or go to court to obtain compensation for the loss suffered. A lawyer can inform you about the possible steps.