M6 Auditors legal liability and other legislation

Question 1

What are the “potential” consequences if an Auditor has acted negligently in their performance?

Answer 1

• civil liability to the Client
• civil liability to the users of the financial statements
• criminal liability (this can happen from breaching the legislation within the companies Act

Question 2

What are the requirements for an Auditor to be civily liable to the client?

Answer 2

• breach of contract
• contractual relationship
• breach of that contract
• loss suffered as a direct result
  OR
• Delictual action
• wrongful act/ omission (didn’t act with due care)
• Fault (intentionally or negligently)
• damages were suffered
• Causation between damage and act/omission

Question 3

What are the requirements for an Auditor to be civily liable to third parties?

Answer 3

-Delictual liability
* auditor has made an intentional or negligent misrepresentation
* third party has suffered loss as a direct consequence
OR
- statutory disposition under s46 of the APA
* opinion must be expressed negligently, maliciously, or fraudulently.
* third party relied on this opinion
* suffered loss as a result of this reliance
AND
[*RA knew or should have known reasonably, that the third party would use the opinion or the client would induce someone to use it
OR
* told a third party that the opinion was correct knowing or reasonably could have known that they would use the opinion