Abstract
The auditor's liability for audited financial statements
Highlights
Two Supreme Court of Appeal (SCA) judicial decisions have “set the cat among the pigeons” when they have regard to the delictual liability of the registered auditor[1] to third parties[2] in South Africa
The contentious issue in this court case was that 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”
This paper demonstrates that it is clearly wrongful for an auditor to make negligent misstatements in his or her audit report, it is reasonably possible that the test for legal causation may render the auditor immune from liability
Summary
Two Supreme Court of Appeal (SCA) judicial decisions have “set the cat among the pigeons” when they have regard to the delictual liability of the registered auditor (auditor)[1] to third parties[2] in South Africa. The second decision was written by Navsa JA in Axiam Holdings Ltd v Deloitte & Touche[4] 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 decision raises the unsettling issue of a representation by “silence”, which could extend an auditor’s liability to a third party beyond what may be the generally perceived boundaries.[5] 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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