TUTORIAL 1 20-34 How can the liquidators of RS Bhd satisfy the causation issue and establish that the

e auditors negligence has resulted in the loss of the company ? Are they likely to succeed? An action for tort of negligence can be brought against the auditor by the third party (in this case is referred to The liquidator of RS Bhd), but the plaintif (RS Bhd) must prove the following elements:1. The Auditor owed a duty of care to the plaintiff to conform to a required standard of care. 2. There is a failure to act in accordance with that duty of care, that is, a breach of duty of care to the plaintiff on the part of the auditor. 3. There is a causal relationship or connection between the auditors negligence and the plaintiff damage. 4. The plaintiff suffered actual loss or damage. An auditor has the obligation under law to perform his duties with the skill and care required under the circumstances. Also implied in the terms of the contract is the auditors duty to perform the audit with due care and competence. In this case, the auditor had conceded that they had not carried out adequate procedures to verify the investments and receivables and had relied mainly on the chief executive written representations and assurance. Therefore, the plaintiff(The liquidator of RS Bhd) has the right to bring legal action against the auditor for breach of contract. To succeed in their claim for economic losses, the plaintiff(The liquidator of RS Bhd) must demonstrate that the loss is the consequence of the breach in the duty of care and at the time the breach was committed, the loss was reasonably foreseeable as a consequence. To prove the causation link, the plaintiff not only has to establish that he was a reasonably foreseeable user of the financial information, but he had in fact relied on the audited financial information in making the investment decision. In this case, the plaintiff may not be able to recover his loss due to the lack of proximity between the breach of duty and the loss. RS Bhd operating results depend on many factors such as management decisions and market forces, thus, an inadequate audit procedures is not the cause of the plaintiffs operating losses or profits. Accordingly, claimed on the negligence against the auditor can be denied. 20-35 Will Edison be able to recover his loss from Wan & Co.? Discuss