Auditors accumulate and evaluate information to be able to determine whether the financial reports of a given company complied with legislative requirements and established criteria. An auditor therefore determines the credibility of financial information so that the correct use of it in business and investment decisions can be made. Auditors have legal duties attached to their activities which they are expected to uphold. A breach of the legal duty which is imposed and fixed by law due to careless acts constitutes what is termed as negligence. This makes it to be based on conduct rather than any form of agreement. A tort of negligence therefore is only committed when actionable damage is sustained, and this is not only by carelessness but by inflicting damage carelessly in situations where the law recognizes a duty to be careful. Negligence is hence established if the conduct was careless and there existed a causal relationship between the damage and that conduct. A close look at it is a situation where the conduct was foreseeable to inflict the damage on person harmed.
Negligence statements provided by company auditors can result to pure economic loss. Internal auditors check the accuracy of the financial information and provide an opinion whether the information is true and fair according to the accounting standards and common law. They are liable to external users of financial information since external users rely on audited statements to make investment decisions hence the need of the opinions to be unbiased and remain independent. Therefore, it is their legal duty to provide an assurance to all audited statements users that the material is not of fraud, its reliable and lacks irregularities. Conclusion by the auditor that the information is fairly stated as per the accounting standards makes them liable if they are found to have been materially misstated.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Duty of care
- Pure economic loss
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This text examines the legal liability of company auditors for negligence, focusing on the implications of their actions for external users of financial reports. The text particularly explores the concept of pure economic loss, a type of damage auditors may be held responsible for due to their professional duties.
- The legal duties of company auditors
- Negligence and its implications for auditors
- The duty of care owed by auditors to external users of financial reports
- The nature and recovery of pure economic loss caused by auditor negligence
- The role of auditing standards and their impact on liability
Zusammenfassung der Kapitel (Chapter Summaries)
Introduction
The introduction defines the role of auditors in evaluating financial information and their legal duties. It explains that negligence by auditors can lead to legal claims based on their careless acts and the resulting economic loss to external users of financial reports.
Duty of care
This section explores the duty of care auditors owe to external users of financial reports. It discusses the legal obligation to avoid causing physical or economic harm through negligent acts or omissions. The section highlights the importance of auditor independence and the potential consequences of interference from the audited company.
Pure economic loss
This section focuses on the concept of pure economic loss, which refers to purely financial losses not resulting from physical damage. It examines the liability of auditors for such losses and the legal basis for recovering them. The section emphasizes the close relationship between auditors and users of financial reports and the responsibility auditors assume for ensuring the accuracy of their opinions.
Schlüsselwörter (Keywords)
This text focuses on the core concepts of auditor negligence, duty of care, pure economic loss, and the legal implications of auditor actions for external users of financial reports. The text explores relevant legal frameworks, accounting standards, and case law to provide a comprehensive understanding of the subject.
- Quote paper
- Kelly Adam (Author), 2013, The Law of Negligence: Company Auditor, Munich, GRIN Verlag, https://www.grin.com/document/267617