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Breach of Contract and Negligence Claimed Against Auditing Firm


Another type of business dispute that arise somewhat commonly is when a company is dissatisfied with the auditing services of an outside company hired to undertake an audit of the company’s finances. In North Carolina and elsewhere, these are usually filed as breach of contract actions by the company alleging that the auditing company breached its duties under the agreement between them. The claim may also assert a tort count to the effect that the negligently performed audit resulted in damages to the client company.

Recently, a company headquartered in another state sued the auditing firm KPMG LLP for negligence in its auditing duties relating to the firm’s financial statements. The complaint alleges that KPMG failed to follow generally accepted accounting practices in the United States. The negligence caused the plaintiff company’s stock equity to be materially misstated, according to the suit.

The complaint, filed in an Alabama court, alleges that KPMG informed the plaintiff company that it made errors in its audits, and the plaintiff had to take extensive measures to try and correct the mistakes. The company says that it suffered serious damages. The plaintiff has asserted its option to arbitration, asking that the problem be sent to an arbitration panel for an award of damages.

The specific details of the alleged breach and/or negligence were not mentioned in early news reports. In North Carolina or elsewhere, the financial reports, profit and loss statements and other economic indicators published by an independent auditing firm may have a lot to do with the ultimate equity value of the stockholders’ stock. False or significantly inaccurate reporting of annual or quarterly financial figures can cause the stock to fluctuate, and in some cases may result in a lawsuit by the stockholders against the corporation. In turn, it may become necessary for the corporation to sue the auditing firm for breach of contract and other claims in order to recover damages for the impact of the negligent services provided.

Source: Birmingham Business Journal, “Sterne Agee files lawsuit against KPMG“, Ty West, May 23, 2014