The Caparo decision is that the auditor has a duty of care to current shareholder as a class (for their common needs, e.g. to exercise their rights as shareholders) and not to individual shareholders (whether existing or prospective). The decision basically brought some sense to litigation in England and Wales – it simply isn’t reasonable to expect auditors to anticipate the wide range of varying needs that individual users of financial statements might have. The point in the RBS case was that the auditor knew that the bank would rely on the financial statements.
The conclusion on the two case studies are contradicting. Why were the investors not able to sue for damages and the bankers were? Shouldn’t the auditors have known that investors would also use it for investing decisions?
Both investors and banks are big users of financial statements.
Kim Smith says
The Caparo decision is that the auditor has a duty of care to current shareholder as a class (for their common needs, e.g. to exercise their rights as shareholders) and not to individual shareholders (whether existing or prospective). The decision basically brought some sense to litigation in England and Wales – it simply isn’t reasonable to expect auditors to anticipate the wide range of varying needs that individual users of financial statements might have.
The point in the RBS case was that the auditor knew that the bank would rely on the financial statements.
mjibola says
The conclusion on the two case studies are contradicting. Why were the investors not able to sue for damages and the bankers were? Shouldn’t the auditors have known that investors would also use it for investing decisions?
Both investors and banks are big users of financial statements.