I have had a steady flow of e-mails over the last couple of weeks, highlighting the plight of BDO International, following a recent appeals court ruling in Florida.
For those of you not in the know, BDO Seidman in the US was found in 2007 to be negligent for failing to detect a Portuguese bank's massive fraud and ordered to pay a total of $521 million - $170 million in compensatory damages and $351 million in punitive damages. At issue is the relationship between BDO Seidman and BDO International and whether the latter could be held liable for the U.S. firm's failure to identify problems in the bank's financial statements between 1998 and 2002.
The Court of Appeal in Florida ruled that a jury should have decided whether BDO International should have also been considered liable. Instead, a lower-court judge had made that decision and dismissed the international organization from the case last February.
Liability between members of international networks and associations is an issue which keeps many of us awake at night. It also keeps a few specialist lawyers busy too.
In the on-going debate about whether international groupings of mid-sized accounting firms should become networks or associations under the new IFAC code, liability concerns have often been key drivers for those encouraging their particular organisation to go down the association route. They have also been the reason why certain smaller firms in organisations that have decided to go down the network route are tempted to look at the greener - but different - pastures enjoyed by those that are members of associations.
No two cases are the same, and it would be wrong to suggest that those in associations are immune from liability issues, whilst those in networks will have to confront them on a regular basis. Nevertheless, it is also true to say that many of those characterisitics that result in a grouping being termed a network are equally likely to result in that network being more likely to face libility claims than those operating in associations, whose characteristics are, by definition, less likely to create association-wide liability claims.
No one should panic - but no one should become complacent either. I just wonder whether those running smaller firms within networks might not wish that they were sitting on the other side of the fence. We shall see.
James Mendelssohn (jmendelssohn@msiglobal.org)
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