- This topic has 3 replies, 2 voices, and was last updated 1 year ago by
.
- Posts
I kindly request for more guidance regarding
qn 50 its relating to Sepp an audit partner.In order to succeed in an action for negligence against an auditor, it is necessary to establish, amongst others, which TWO of the following:
A. That claimant is a legal neighbour of the alleged negligent auditor.
B. the alleged negligent auditor knew the claimant personally at the time the alleged negligence occurred
C. the claimant must show that reliance was placed on the negligent statement made by the auditor.
D. only that some of the financial loss suffered by the claimant is because relied upon the alleged negligent statementmy answer was C and D
But according to opentuition the answers are A and C
How? Kindly explain the above scenario
Hi Nital
Option C is correct (as you already know) but option D cannot be right. Look at the case Jeb Fasteners v Marks Bloom where it was established that Jeb was already committed to the purchase of B and D Fasteners and so were going to lose their investment. Their stated intention of paying an additional amount ‘if the financial statements’ audit opinion was unqualified’ merely increased the extent of their loss whereas, for a case of negligence to succeed, it’s necessary to show that ‘any financial loss suffered is attributable to reliance on the negligently-made statement and is due to no other cause’.
So D is incorrect
You were correct to omit option B
Option A? A legal neighbour is ‘a person so affected by my acts that I should have them in mind as likely to be affected when I commit those acts’.
Should an auditor acknowledge that other, unknown third parties would rely on an auditor’s opinion?
That’s tricky! It was stated in an earlier case (Candler v Crane Christmas) that it would be unreasonable to hold an auditor liable to an ‘indeterminate group of people for an indeterminate amount for an indeterminate period of time’ so that would cast some doubt on the extent of an auditor’s legal neighbours.
But the (relatively) recent case of RBS v Dickman threw the cat amongst the pigeons and proposed that, where the auditor knew that the opinion was to be relied upon, then the neighbourhood relationship was established.
Is that better for you?
- You must be logged in to reply to this topic.