Leech v Stokes Bros. and Pim

• Jurisdiction: Ireland
• Judgment Date: 23 November 1937
• Date: 23 November 1937
• Court: Supreme Court (Irish Free State)

I.F.S.]

Leech

and

Stokes and Pim

Preparation of annual profit and loss account for income tax purposes - Duty of auditors and accountants in preparing such accounts - Whether bound to prepare a balance sheet - No materials available from which a balance sheet could be prepared -Whether entitled to prepare accounts without such materials - Embezzlement by clerk of agency fees collected - Allegation that if accounts had been properly made out such embezzlement would have been detected and further misappropriation prevented - Books not showing any grounds for suspicion of embezzlement - Vouching agency fees - Whether necessary - Liability of auditors and accountants.

The plaintiff, the surviving partner of a firm of solicitors, brought an action against the defendants, a firm of chartered accountants and auditors, for negligence and breach of duty in the preparation of profit and loss accounts for income tax purposes. For many years the defendants had furnished such accounts in respect of the plaintiff's firm upon the instructions of the junior partner. With the accounts the defendants had submitted a report and a certificate that the accounts were correct and had been prepared from the books of the firm. The defendants did not discover that, during the years in respect of which the defendants had so certified and reported, a clerk employed by the plaintiff's firm had been embezzling money of the firm, received by them as agency fees for the collection of rents of a large number of estates. The junior partner of the plaintiff's firm died, and after his death the fact of the embezzlement was discovered by another firm of auditors and accountants who were then employed by the plaintiff's firm in place of the defendants. The plaintiff, as surviving partner of the firm of solicitors, in his action charged the defendants with negligence in that they did not prepare a balance sheet and in not refusing to prepare a profit and loss account until the books of the firm had been properly written up; that they did not limit their certificates by stating that the figures in the profit and loss accounts had not been checked; and that they did not discover or suspect the fact of embezzlement. The plaintiff alleged that portion of the moneys embezzled, if sooner discovered, would have been allowed as deductions for income tax purposes as "bad debts," and that the failure to obtain such allowance was due to the defendants' negligence. The defendants contended that their...