Question 1.
Why would the courts want to limit the ability of third parties to sue auditors who have been negligent? Are there any arguments that this liability should not be limited?
Question 2.
A. Explain the impact that the Pacific Acceptance case had on existing auditing practice.
B. List four of the procedures or practices that were identified in the ruling as being part of a competent audit.
Question 3.
Match the case with the ruling:
Cases: Rulings:
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Caparo Industries Pty Ltd v. Dickman
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Duty of Care owed to third parties in the absence of a contract where the plaintiff has suffered physical injury
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Kingston Cotton Mill Co.
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The standards for an auditor's level of skill and care are more exacting today than in 1896
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Segenhoe Ltd v. Akins & Ors
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Third party liability for auditors under the tort of negligence
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AWA Ltd v. Daniels
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An auditor's duty of care is owed to shareholders as a group, not to individual shareholders
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Donoghue v. Stevenson
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An auditor is a watchdog, but not a bloodhound
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Twomax Ltd v. Dickson, McFarlane & Robinson
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Contributory negligence
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Pacific Acceptance Corporation Ltd v. Forsyth
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Auditors are liable for any dividends paid out of capital due to auditor negligence
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