1887

oa De Jure - The auditor’s liability for audited financial statements

Volume 52 Number 1
  • ISSN : 2225-7160

 

Abstract

Two Supreme Court of Appeal judicial decisions have changed the manner in which courts will have to view an auditor’s liability to third parties. The first decision was written by Brand JA in Cape Empowerment Trust Limited v Fisher Hoffman Sithole, where he held that a misstatement in the auditor’s report by the auditor was grossly negligent but not wrongful. The auditor was afforded immunity from liability for a negligent misrepresentation which consisted of a misstatement in the audit report which rendered the audit report “unusable” thereby defeating the purpose for the auditor’s existence. This paper demonstrates that it is clearly wrongful for an auditor to make negligent misstatements in his or her audit report, however it is reasonably possible that the test for legal causation may render the auditor immune from liability. The second decision was written by Navsa JA in Axiam Holdings Ltd v Deloitte & Touche where he held that an auditor may have a duty to warn a third party about the incorrectness of an audit report even if the auditor is unaware of its incorrectness, and ignorant to whom the warning must be made, if the third party can show that the auditor ought reasonably to have known of the incorrectness. This paper demonstrates that while an auditor has a duty to speak, such a duty cannot exist without a third party to speak to.

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/content/journal/10520/EJC-1ac3387c44
2019-04-01
2020-09-26

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