proximity

Hi ddnguyen,
its the creation of a relationship between the auditor and the third party.
the example that you will have probably seen quoted in your studies is Caparo Industries v dickman (1990) where it was determined that the auditor owed a duty to the shareholders as a whole rather than the individual shareholders or in this case potential shareholders.
There is no proximity to the individual only to the group.
Proximity was actually defined in the Donoghue v Stevensen (1932) as “such close and direct relations that the act complained of directly affects a person whom the person alleged to be bound to take care would know would be directly affected by his careless act:”.
That is born out further by an example (taken from Mike Little P7 lecture) of the ADT case (ADT v Binder Hamlyn (1996)) where proximity was created by a partner of binder hamlyn who stated that they stood by the audit so assuming responsibility so creating proximity.