According to (J.Kate, 1990) It is the duty of the auditor to perform its duties with skills, care and caution which reasonably competent and careful, (auditor negligence). Duty of care a requirement that a person act toward others and the public with watchfulness, attention, caution and prudence that a reasonable person in the circumstances would. If a person's actions do not meet this standard of care, then the acts are considered negligent, and any damages resulting may be claimed in a lawsuit for negligence.
It is the duty of an auditor to bring to bear on the work he has to perform that skill, care and caution which a reasonably careful, cautious auditor would use. What is reasonable skill, care and caution …show more content…
Harm must be a "reasonably foreseeable" result of the defendant's conduct;
2. A relationship of "proximity" must exist between the defendant and the claimant;
3. It must be "fair, just and reasonable" to impose liability.
• Foreseeable test- only test is whether the harm to the plaintiff from the defendant's actions was foreseeable. Complex balancing test consisting of multiple factors which must be carefully weighed against one another to determine whether a duty of care exists in a negligence action.
• The plaintiff will be liable if the defendant is able to prove that he or she has suffered a loss by the duke of care of an auditor. The auditor did to carry out his or her duty respectively and the defendant suffered a loss by the negligence of the auditor.
Case – Kingston Cotton Mill Co, managers have been overstating the profits for years to show more profits, auditors relied on the reports of the management and provided audited reports. Company failed to pay debts and the auditors were …show more content…
(“NGA”) and North guard Holdings Ltd. (“NGH”) carried on business lending and investing money on the security of real property mortgages. The appellants Hercules Managements Ltd. (“Hercules”) and Max Freed were also shareholders in NGA. Guardian Finance of Canada Ltd. (“Guardian”) was the sole shareholder of NGH and also had some shares in NGA. The respondent Ernst & Young was originally hired by NGA and NGH in 1971 to perform annual audits of their financial statements and to provide audit reports to the companies’ shareholders. The partners held personal investment in NGA, NGH. In 1984 both the companies went into receivership. The other investors and shareholders bought an action against NGA in 1988 as they suffered a loss by the audited reports prepared for the NGA company in 1980,1981,1982, were negligently prepared and that in reliance on these reports, they suffered various financial losses. They also alleged that a contract existed between themselves and the respondents in which the respondents explicitly undertook to protect the shareholders’ individual interests in the audits as distinct from the interests of the corporations themselves. The Supreme Court of Canada held – precedent Foss v. Harbottle (which provides that individual shareholders have no cause of action in law for any wrongs done to the corporation) affects the appellants’ action. The grounds for the motion were (a) that there was no contract between the