Can any third party sue an auditor? This act provides absolute protection to original and subsequent purchasers and sellers of securities. As the Trial Judge put it: The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice.
In deciding the circumstances in which the auditors of a company owe a duty of care to a third party with whom they have no contractual relationship the Courts have been divided in their approach: Hochfelder,  plaintiffs must show proof of scienter the intent to deceive, manipulate, or defraud.
If the consultant's exposure is likely to be increased, however, the fee may reflect the cost to the consultant of obtaining additional insurance. Negligence can be referred to as ordinary negligence and gross negligence.
Under statutory law, an auditor can be held civilly or criminally liable. This proposal was designed to counter-balance both the increasing amount of information which the auditors are required to review and the Steering Group's proposal to set out in statute an extended range of persons to whom auditors would be deemed to owe a duty of care - namely existing shareholders and creditors, those who become shareholders or creditors in reliance on the accounts, and possibly employees.
So what lies behind PWC's decision? Although auditors may well include in their audit engagement letters restrictions on the persons to whom the company may provide the audit report or for what purpose, they have not to date included in their audit opinion letters a disclaimer of liability to third parties, even though neither the Act nor auditing standards prohibit it.
All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
Attempts to exclude or limit liability for negligence by means of a contractual term such as in an engagement letter or a notice such as in an audit opinion letter which is reproduced in the accounts are subject to a test of reasonableness under section 2 2 of the Unfair Contract Terms Act UCTA This act provides absolute protection to original and subsequent purchasers and sellers of securities.
Liability occurs when there is a breach of contract. Although the principles relating to both approaches are well established and should at least in theory result in the same outcome as per Sir Brian Neill in Bank of Credit and Commerce International Overseas Ltd v Price Waterhouse  BCCtheir application in any particular case may not be straightforward because the Courts have been wary of imposing a duty on professional advisors to anyone other than their clients.
Some comfort for auditors who are sued in tort by banks who have lent money to a company in reliance on statutory accounts was provided by the decision of the High Court in Al Saudi Banque v Clarke Pixley  Ch. For example, if the company is trying to issue new equity or get a loan from a bank, these potential investors and the potential creditor i.
While the Act creates liability only to those investors involved in the initial distribution of public offerings, the Act increases that responsibility to subsequent purchasers and sellers of the stock.
Put another way, such a disclaimer should be enough to prevent the maker of the statement from being taken to have assumed responsibility to the third party.
In addition, unjustified lawsuits also may involve the phenomenon of audit risk. The audit engagement letter creates a contract between the audit firm and the company, and will set out amongst other things the scope of the audit to be carried out.
A company's directors are responsible for preparing and approving accounts that give a true and fair view of the profit or loss during the year, and the state of affairs of the company at the year end.party or parties’ reliance.8 Affirmative conduct linking auditors to the relying party is a requirement that makes the Credit Alliance test at least as, if not more, restrictive than Ultramares (though they are both near privity rules).
Professional liability of accountants and auditors This document has no regulatory status. It is issued for guidance accountants and auditors. It would be a defence to an action for generally avail him or her against a third party.
Third party liability is dealt with separately below. Chapter Overview of Auditor’s Legal Liability Liability to Third Parties--Common Law Nonclients can sue an accountant for fraud. Privity is not necessary.
Keep in party or parties’ reliance.8 Affirmative conduct linking auditors to the relying party is a. THE AUDITOR’S LIABILITY Factors for liability to third party by auditor may established The Hedley Byrene is often used to represent very narrow view of.
The issue of auditors’ liability to third parties has been brought sharply into focus recently with The Company Law Reform Bill which embodies some significant changes in relation to auditors’ liability, namely the ability to negotiate “Liability Limitation Agreements”.
The expectations of users of financial statements have risen in recent years and this phenomenon has impacted directly on auditors who are now becoming increasingly prone to third party action. The duty of care expected of an auditor has been established for some time and has been refined by a number of judgments over the years.
In respect of possible third party liability, the concepts of.Download