Swaps close-out costs: auditor not responsible for financial consequences of decision to enter into swaps
06 March 2019
Incorrect advice given by an auditor as to the accounting treatment of interest-rate swaps did not make it liable for the close-out costs of those swaps which became necessary, following the application of the correct accounting treatment. The Court of Appeal restated and applied the SAAMCO1 principles for determining the limits of the foreseeable losses recoverable from a negligent professional adviser. It emphasised the distinction, originally drawn in SAAMCO, between “advice” cases, where the adviser assumes responsibility for the entirety of a decision-making process and thus for the losses that flow from the decision taken, and “information” cases, where the adviser provides discrete advice or information and only assumes responsibility for the losses flowing from that advice or information being wrong. This ruling will be of interest to auditors, particularly in relation to advice as to how clients’ business activities can be treated in their accounts, as well as to other professional advisers who provide information to clients on the basis of which they will take other business decisions: Manchester Building Society v Grant Thornton UK LLP  EWCA Civ 40.
1 South Australia Asset Management Corp v York Montague Ltd  A.C. 91.
2  2 WLR 1029.