An auditor’s objectives are to obtain reasonable assurance about whether the financial statements are free from material misstatement, whether intentionally i.e. due to fraud or error. The auditor will produce an auditor’s report that includes their opinion. A company will usually seek assistance from an external or internal auditor to carry out this work.
We provide expert legal advice on professional negligence claims against auditors. If you have been given bad advice or have a complaint about an auditor it is important that you take independent legal advice to seek compensation for your loss before the time limits expire (usually six years).
What are the duties of an auditor? When can an auditor be held liable for negligence?
Auditors provide more than simply looking at the accounts of a company- they are under a duty to investigate the substantial accuracy of accounts and to ensure they represent a true version of the company’s affairs.
Companies commonly rely on accountants to assist in preparing and reconciling accounts and writing financial statements. An external, independent auditor is then engaged to render an opinion on whether the company’s financial statements are presented fairly and importantly, in accordance with financial reporting framework.
To form the opinion, the auditor is required to collate and consider appropriate and sufficient evidence and carries out analysis and comparisons until gaining reasonable assurance on whether the financial statements are free of material misstatement, which have been made either fraudulently or mistakenly.
Regulation of auditors
The EU Audit Directive and Regulation is implemented in relation to companies through Part 16 and Part 42 of the Companies Act 2006. The relevant regulatory bodies are:
- HM Treasury;
- The Financial Conduct Authority;
- The Institute of Chartered Accountants in England and Wales (ICEAW); and
- The Professional Oversight Board of the Financial Reporting Council (POB).
We can assist in advising on and preparing a complaint to a regulatory body in relation to an auditor’s misconduct or negligence. We also advise clients in issuing proceedings against professionals for professional negligence.
Complaint about an auditor?
You may have a complaint against an auditor if they have failed in their task to consider your needs as a client. Their duties include:
- Ensures compliance with established internal control procedures by examining records, reports, operating practices, and documentation.
- Complying with relevant regulations and legislation.
- Verifies assets and liabilities by comparing items to documentation.
- Communicating findings with auditees and documenting audit tests and findings in a final report.
- Appraises adequacy of internal control systems by completing audit questionnaires.
- Maintains internal control systems by updating audit programs and questionnaires; recommending new policies and procedures.
- Maintains professional and technical knowledge.
Case Study: High Court finds auditors negligent for failing to follow financial assistance whitewash procedures
Auditors carried out the audit without enquiring into the affairs of the company to the extent that an auditor of reasonable competence would have done. The High Court has previously held that a company is entitled to damages from its directors and its auditors where the directors had been in breach of fiduciary duty and the auditors failed to perform an audit in accordance with the financial assistance whitewash procedures.
(1) Robert Edward Caunce Cook and (2) M&S Tarpaulins Ltd (in Liquidation) v Green and others, 2 May 2008, (Unreported)
How do I prove that my auditor has been negligent?
Like all negligence actions, in order to claim compensation, the following three elements need to be made out by a claimant to prove the tort of negligence against an auditor:
- Duty of care – The defendant auditor/firm owed the claimant a duty not to cause the type of harm suffered.
- Breach of duty – The auditor breached the duty owed.
- Causation – This has two elements, both of which must be proved i.e. (a) factual causation in that the claimant must prove, but for the defendant’s negligence, they would not have suffered loss and (b) legal causation or remoteness in that the defendant’s negligence was the legal cause of loss.
Book an Initial Consultation with our Professional Negligence Lawyers
Do you have a claim against a professional? If you want expert legal advice, do not delay in instructing us so we can assess the legal merit of your case.
We can often take on such claims on a no win no fee basis (such as a Conditional Fee Arrangement) once we have discussed the claim with you and then assessed and advised you on the merits of the proposed professional negligence action.
Our expert legal team of leading Professional Negligence Solicitors & Barristers can provide urgent help, advice or representation to you. Just call our Professional Negligence Lawyers on 02071830529 or email us now.
Instruct Specialist Professional Negligence Solicitors
We are a specialist City of London law firm made up of Solicitors & Barristers operating from the only law firm based in the Middle Temple Inn of Court adjacent to the Royal Courts of Justice. Our team have expertise in advising on claims for compensation against professionals that have fallen below the standard expected, which causes clients financial or personal loss. We are experienced in bringing successful claims against negligent solicitors, barristers, financial advisers, insurance brokers, surveyors, auditors, valuers, architects, tax advisers and IFAs.
