Professional Documents
Culture Documents
Joint and several liability which increases the financial base for compensation
Pressure to reduce audit fees and at the same time improve the quality of
services- this means more resources are used yet there isnt enough fees to cover
cost so some aspects may be overlooked
Punitive damages
Client
Clients guarantors
Government
Employees of client
Social activists
USA audit literature places a significant emphasis on the foresee-ability of other users
observing that the burden of proof by the plaintiff depends on the likelihood that an
auditor could reasonably foresee that a particular user might rely on audited financial
statements
For any person to maintain an action against the auditor in negligence, he must
prove that:
i.
Where a duty of care exists, the plaintiff must prove negligence on the part of
the auditor. Auditors are judged by accepted professional standards in force.
This concept was tested in the case of Wilde& Other v Cape & Dalgleish (1897)
the auditors were found to be negligent in failing to detect defalcations since
they did not examine the bank passbooks contrary to generally accepted bank
practice.
iii.
Lord Denning in the case of Esso Petroleum v Marden (1976) said In the case of
a professional man, the duty of reasonable care arises not only in contract but is
also imposed by the law apart from contract and is therefore actionable in tort
Liability to Third Parties
This is one of the most controversial and hotly debated areas in auditing today.
Caparo Industries plc v Dickman& Other (1990): Facts of the case
In 1984 Caparo Industries purchased 100,000 Fidelity shares on the open market.
On June 12 1984, the date on which the accounts were published, they
purchased a further 50,000 shares and relying on information in the accounts
further shares were acquired. By October Caparo had acquired control of
Fidelity. Caparo alleged that the accounts on which they had relied were
misleading in that an apparent pre-tax profit of some 1.3 million pounds should
in fact have been shown as a loss of 40,000 pounds. The Plaintiff argues that the
auditor owed duty of care to investors and potential investors.
The House of Lords declared that the auditors of a public companys accounts
owed no duty of care to members of the public at large who relied upon the
accounts in deciding to buy shares in the company. Further the House of Lords
held that for one to maintain an action against the auditor, such a person must
be a member of the company instituting the lawsuit. Moreover, it is a basic
maxim that the company is all members acting as a body; hence individual
members cannot sue the auditor successfully.
This landmark decision drastically reduced the groups of people who could sue
auditors to only members acting jointly.