Expert Witness Journal Issue 66 April 2026 - Flipbook - Page 22
Judgement, Evidence and
Hindsight: An expert’s approach
to assessing auditor negligence
by Divya Devadoss, Associate Director, Forensic Services at Crowe.
In addition to the con昀椀dentially settled claim, the
auditors are also subject to regulatory investigation
by The Financial Reporting Council (FRC) whose
provisional report into the matter noted “extremely
serious” failings.
The new battleground in
auditor negligence
Expert evidence in auditor negligence matters can
be invaluable. This is particularly the case as the
world of 昀椀nancial reporting becomes increasingly
thorny, involving complex estimates, subjective
assumptions and forward-looking judgements. All
of this contributes to the line between a defensible
professional decision, and auditor negligence in
failing to identify an issue, becoming increasingly
blurry. Expert opinion to distinguish between
the two, and determine whether a judgement
was ‘reasonable’, can therefore be crucial, but
complicated.
This is the basis of the determination as to whether
their decision making was reasonable based on what
they knew – or should have known – at the time.
When good judgement goes bad
There are several ‘grey areas’ in accounting where
two professionals could reasonably reach opposing
conclusions. Such judgements often involve
imperfect information and competing indicators,
with auditors being required to weigh up often
contradictory information.
Auditors are no longer just tasked with mechanical
compliance and box-ticking but now face scrutiny
over the quality of their professional judgment in
evaluating management decisions. When allegations
of negligence arise, audit and forensic experts are
required to strip away the distortions of hindsight
and step into the shoes of the auditor at that time,
reconstructing the circumstantial environment in
which their conclusions were formed.
In these cases, the issue is often less about whether
the expert agrees with the judgment reached, but
rather more about whether the auditor’s process for
arriving at their judgement was su昀케ciently robust,
coherent and evidence driven.
A judgement may look reasonable when viewed in
isolation, but forensic review of the steps taken to
reach that outcome can often reveal omissions or
weaknesses. As well as ensuring that auditors have
addressed all the information in front of them
appropriately, forensic experts will also look to
ensure that auditors asked the right questions to
establish the full facts of the matter. It is not enough
for an auditor to simply say they weren’t aware of a
key issue if it can be established through evidence
that they should have been.
A forensic lens reveals the rigour of the auditor’s
challenge via an assessment of the contemporaneous
evidence.
Case Study: Administrators claim against the
auditors of a major listed healthcare company
after o昀昀-balance sheet caused a corporate collapse
This recent high-pro昀椀le £2 billion High Court
claim highlighted that signi昀椀cant inconsistencies in
the companies’ debt position was already available
to the audit team yet no meaningful follow-up
was undertaken. When challenged, the auditors
maintained that they were unaware of the issues but
contemporaneous evidence showed that relevant
information had been received by the auditors and
simply not pursued.
EXPERT WITNESS JOURNAL
Case study: Regulatory 昀椀ndings regarding the
audit of long-term construction contracts
The FRC sanctioned the auditor of a major listed
construction company for failure to properly
assess and challenge management’s inclusion of
overestimated settlement amounts relating to
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APRIL 2026
