Do you believe that the auditors should be responsible to users other than the shareholders? Give reasons to support your answer

Auditing and Assurance Revision Questions and Answers


i) As a result of developments in case law Donahue V Stephenson in 1932 to Hedley Byrne & Co. Ltd V Heller & Partners Ltd in 1963, auditors may be held to owe a duty of care to third parties under certain circumstances. A third party who suffers a loss through reliance on misleading audited accounts may bring an action for damages against the auditor in tort.

ii) Such a requirement would make auditors more vigilant in their work because of potential liabilities.
iii) Creates an avenue to compensate other users for lose occasioned auditors negligence.
iv) Protection of public interests at large from fraudulent auditors.

Woolf J; in his judgment in the case of Jeb Fasteners Ltd V Mark Bloom & Co. identified the conditions to be met in actions under tort as follows :-

1. Foresee ability, the dependent, of the plaintiff‘s.
2. Reliance the plaintiff on the accounts
3. Negligence the defendant in preparing, (auditing) the accounts.
4. Causation of loss suffered the plaintiff in consequence of the negligence.
5. Quantum of the loss suffered the plaintiff arising out of the defendants negligence.

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