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Subject Code : ACC412
Assignment Task:

Auditor liability: ‘fair and reasonable’ punishment?

The issue of auditor’s liability is included in the syllabus for Advance Audit. Candidates need to understand and apply the principles of establishing liability in a particular situation, as well as being able to discuss the ways in which liability may be limited. 

Over the past two decades the bill for litigation settlements in UK of Big Four audit firms alone has run into billions of dollars. Examples include Deloitte’s 2005 settlement of $250m regarding its audit of insurance company Fortress Re and PwC’s $229m settlement in the lawsuit brought by the shareholders of audit client Tyco in 2007.

Auditor liability is increasingly concerning, both in terms of audit quality and the reputation of the profession but also in terms of the cost to the industry and the barriers this creates to competition within the audit market.

Case history
The application of the law of tort in the auditing profession, and the way in which auditors seek to limit their exposure to the ensuing liabilities, has been shaped by a number of recent landmark cases. The most notable of these are Caparo Industries Plc (Caparo) v Dickman (1990) and Royal Bank of Scotland (RBS) vs Bannerman Johnstone MacLay (Bannerman) (2002).

Required:

For both the above cases students are required to submit complete case analysis with the final outcome of the liability discussing when duty of care between an auditor and a third party exists, who filled the claim, why, what were damages, how the liability triggered, etc. 


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  • Posted on : June 13th, 2019

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