Esanda Finance Corporation Ltd v Peat Marwick Hungerfords was a High Court of Australia case regarding the liability of auditors to third parties. It was decided on 18 March 1997. The appellant, Esanda, loaned money to a corporation in reliance on a report prepared by a finance company, Peat Marwick Hungerfords. When the borrower defaulted on the loan, Esanda turned to the auditors to recover claiming it had acted on reliance of audited accounts which breached mandatory accounting standards in relation to preparing the accounts and but for this breach of duty by Peat Marwick Hungerford. Central to this argument was that Esanda had suffered a loss which would not have occurred if not for reliance on Excel's audited accounts, which were prepared with a breach of standards.
The High Court of Australia is the supreme court in the Australian court hierarchy and the final court of appeal in Australia. It has both original and appellate jurisdiction, the power of judicial review over laws passed by the Parliament of Australia and the parliaments of the states, and the ability to interpret the Constitution of Australia and thereby shape the development of federalism in Australia.
Esanda Finance Corporation Limited is an Australian finance company. It deals in car and boat finance as well as insurance. It is a wholly owned subsidiary of the Macquarie Group.
KPMG is a professional service company and one of the Big Four auditors, along with Deloitte, Ernst & Young (EY), and PricewaterhouseCoopers (PwC).
The Court held that there was no cause of action successfully pleaded by the Appellant and that the appeal should be dismissed with costs. Although this order was unanimous, there were four different judgments emanating from the Court to explain why. This case is generally seen as authority for the proposition that auditors do not owe a duty of care to third parties. However, the case was decided using the multi-factorial approach with reasons against finding a duty being: that Esanda, as a corporation, was not vulnerable as it could have made its own enquiries regarding the financial position of the borrower; and that allowing the appeal may have given rise to indeterminate liability to the auditor.
In tort law, a duty of care is a legal obligation which is imposed on an individual requiring adherence to a standard of reasonable care while performing any acts that could foreseeably harm others. It is the first element that must be established to proceed with an action in negligence. The claimant must be able to show a duty of care imposed by law which the defendant has breached. In turn, breaching a duty may subject an individual to liability. The duty of care may be imposed by operation of law between individuals who have no current direct relationship but eventually become related in some manner, as defined by common law.
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Negligence is a failure to exercise appropriate and or ethical ruled care expected to be exercised amongst specified circumstances. The area of tort law known as negligence involves harm caused by failing to act as a form of carelessness possibly with extenuating circumstances. The core concept of negligence is that people should exercise reasonable care in their actions, by taking account of the potential harm that they might foreseeably cause to other people or property.
A tort, in common law jurisdictions, is a civil wrong that causes a claimant to suffer loss or harm resulting in legal liability for the person who commits the tortious act.
A financial audit is conducted to provide an opinion whether "financial statements" are stated in accordance with specified criteria. Normally, the criteria are international accounting standards, although auditors may conduct audits of financial statements prepared using the cash basis or some other basis of accounting appropriate for the organisation. In providing an opinion whether financial statements are fairly stated in accordance with accounting standards, the auditor gathers evidence to determine whether the statements contain material errors or other misstatements.
A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties. Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for example, a corporate trust company or the trust department of a bank, acts in a fiduciary capacity to another party, who, for example, has entrusted funds to the fiduciary for safekeeping or investment. Likewise, asset managers, including managers of pension plans, endowments, and other tax-exempt assets, are considered fiduciaries under applicable statutes and laws. In a fiduciary relationship, one person, in a position of vulnerability, justifiably vests confidence, good faith, reliance, and trust in another whose aid, advice, or protection is sought in some matter. In such a relation good conscience requires the fiduciary to act at all times for the sole benefit and interest of the one who trusts.
A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.
The Court of Auditors is a French administrative court charged with conducting financial and legislative audits of most public institutions and some private institutions, including the central Government, national public corporations, social security agencies, and public services. The Court is essentially a cross between a court of exchequer, comptroller general's office, and auditor general's office in common-law countries.
The Comptroller and Auditor General (CAG) of India is an authority, established by Article 148 of the Constitution of India, which audits all receipts and expenditure of the Government of India and the state governments, including those of bodies and authorities substantially financed by the government. The CAG is also the external auditor of Government-owned corporations and conducts supplementary audit of government companies, i.e., any non-banking/ non-insurance company in which Union Government has an equity share of at least 51 per cent or subsidiary companies of existing government companies. The reports of the CAG are taken into consideration by the Public Accounts Committees (PACs) and Committees on Public Undertakings (COPUs), which are special committees in the Parliament of India and the state legislatures. The CAG is also the head of the Indian Audit and Accounts Department, the affairs of which are managed by officers of Indian Audit and Accounts Service, and has over 58,000 employees across the country.
Caparo Industries PLC v Dickman[1990] UKHL 2 is a leading English tort law case on the test for a duty of care. The House of Lords, following the Court of Appeal, set out a "three-fold test". In order for a duty of care to arise in negligence:
Continuation of an entity as a going concern is presumed as the basis for financial reporting unless and until the entity's liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity's liquidation becomes imminent, financial statements are prepared under the liquidation basis of accounting.
Regal (Hastings) Ltd v Gulliver[1942] UKHL 1, is a leading case in UK company law regarding the rule against directors and officers from taking personal advantage of a corporate opportunity in violation of their duty of loyalty to the company. The Court held that a director is in breach of his duties if he takes advantage of an opportunity that the corporation would otherwise be interested in but was unable to take advantage. However the breach could have been resolved by ratification by the shareholders, which those involved neglected to do.
Economic loss is a term of art which refers to financial loss and damage suffered by a person such as can be seen only on a balance sheet rather than as physical injury to the person or destruction of property. There is a fundamental distinction between pure economic loss and consequential economic loss, as pure economic loss occurs independent of any physical damage to the person or property of the victim. It has also been suggested for it to be called "commercial loss" as injuries to person or property could be regarded as "economic".
Ultramares Corporation v. Touche, 174 N.E. 441 (1932) is a US tort law case regarding negligent misstatement, decided by Cardozo, C.J. It contained the now famous line on "floodgates" that the law should not admit "to a liability in an indeterminate amount for an indeterminate time to an indeterminate class."
Australian corporations law has historically borrowed heavily from UK company law. Its legal structure now consists of a single, national statute, the Corporations Act 2001. The statute is administered by a single national regulatory authority, the Australian Securities and Investments Commission ("ASIC").
The Tribunal de Cuentas is the supreme governmental accounting body of Spain responsible of the comptrolling of the public accounts and the auditing of the accountancy of the political parties, in accordance with the Constitution and its Organic Law.
International Shipping Co (Pty) Ltd v Bentley is an important case in South African law. It was heard in the Appellate Division on 25 and 26 September 1989, with judgment handed down on 10 November. The presiding officers were Corbett CJ, Botha JA, Hefer JA, Smalberger JA and Friedman AJA. The case is especially important in the law of delict, in the area of causation and on the question of the remoteness of damages. An auditor was sued by a financing company for loss caused by negligent misstatements contained in a report by the auditor of a group of companies. This report was misleading: It did not give an accurate picture of the bleak financial situation of the group for which the company was providing financial facilities. The court found that the auditor had acted negligently and unlawfully, and so established factual causation. On appeal, however, it was held that the company's loss was too remote for the auditor to be held liable. The judgment set out the factors relevant to determining whether or not a loss is too remote.
Whether providing services as an accountant or auditor, a certified public accountant (CPA) owes a duty of care to the client and third parties who foreseeably rely on the accountant's work. Accountants can be sued for negligence or malpractice in the performance of their duties, and for fraud.
Stringer v Peat Marwick Mitchell & Co [2000] 1 NZLR 450 is a cited case in New Zealand regarding liability for negligent misstatements
Deloitte & Touche v Livent Inc 2017 SCC 63 is a leading case of the Supreme Court of Canada concerning the duty of care that auditors have toward their clients during the course of a professional engagement.
Singularis Holdings Limited v Daiwa Capital Markets Europe Limited[2018] EWCA Civ 84 is a judicial decision of Court of Appeal of England and Wales relating to the duties owed by a bank where a person acting on behalf of a corporate customer of the bank directs the bank to transfer money out of the company's account as part of a fraudulent scheme.
