Auditors

Question 1

KJ Pittalis and Co v ICAEW

Answer 1

• disciplinary committee tribunal, KJ breached ICAEWs audit independence and ethics rules as an employee of KJ had a direct financial interest in the company it audited. Company had 6.87% of companies shares that KJ and Co audited between 1995-2009 and remaining shareholders were family members and directors of company. KJ pitallis fined 7,000 with costs of 3,937.

Question 2

Hedley Byrne and Co v Heller and Partners

Answer 2

in limited circumstances - where there is no contractual statement - a negligent misstatement can give rise to damages of pure economic loss - by relying on auditors expert valuation and duty of care for proper skill and judgement

Question 3

Caparo industries v Dickman - future accounts

Answer 3

Capraro industries bought shares in Fidelity plc based on reliance of the audited accounts which states the Fidelis had made pre tax profit 1.3m However Fidelity had actually made a loss of 400k. Caparo bought action against creditors claiming they were negligent in certifying the accounts. Held no duty of care owed to either members of the public who rely on the accounts in deciding whether to invest in the company’s share or to existing members of the company who may also rely on the accounts for future investment decisions.

Question 4

Lord Bridge - three requirements for proximity

Answer 4

relationship of sufficient proximity in misstatements case:

1. Defendant giving advice or communication was aware of the nature of transaction in contemplation
2. Defendant was aware advice or info would be communicated to plaintiff directly
3. Defendant knew it was likely that the plaintiff would rely on advice or info in deciding whether or not to engage in future transaction.

Question 5

Lloyd Cheyham and co v littlejohn and co - accounting standards

Answer 5

plaintiff maintained it had lost money on investment because the defendant did not assess the financial provision of the investment accurately. However, the auditing firm maintained that it followed proper standards when conducting the audit - ruled in favour of the auditors because accounting methods were consistent with the current standards of practise.