The risks auditors face, have increased substantially in the last few years and continue to do so. They are expected to act as security officers and to detect errors and crimes.

In a recent judgment by the SCA the main issue before the court was the liability of an auditor for a negligent misstatement by one of its employees who had been asked by a buyer of a business to certify the profit of the business. The auditor certified that there was a profit when in fact there was none. As a result of the certification the buyer entered into the transaction and allegedly incurred wasted expenses. The court found that the misstatement was grossly negligent and a factual cause of the loss, but was neither its legal cause nor wrongful.

The judgment deals with the elements of wrongfulness, which the judges said is problematic. Public and legal policy considerations are important. They dictate whether a party should be held legally liable for a loss. The degree of negligence is not included in that consideration. The judgment also deals with the question of pure economic loss, also a complicated concept.

Bearing in mind their potential liability auditors should make themselves aware of the contents of this judgement. Taking good legal advice would be a good idea. The issues are very complicated.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.