After Caparo: who takes the risk?

Article Abstract:

The UK House of Lords in its Caparo Industries PLC decision limited auditors' liability to potential claimants, bucking the trend that has increased auditors' exposure to potential litigation. The House of Lords held that statutory financial statements are prepared to help shareholders and are not created to assist potential investors. Thus, auditors are not exposed to liability from investors who relied on the financial statements they have audited. A new case concerning auditors' liability for financial accounts, Morgan Crucible Co PLC v Hill Samuel Bank Ltd and Others, has been allowed to proceed by the Court of Appeal on the basis that a duty of care existed relative to the defendants. The defendants claim that the financial statements were negligently prepared and misleading. The ruling on the case will have a profound affect on the accounting profession and auditors' liability.

Morgan Crucible Company PLC, Caparo Industries PLC, Hill Samuel and Company Ltd.

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Auditor's fate in the crucible?

Article Abstract:

The law governing auditors' negligence is not separate but is a subset of the case law defining professional negligence. The House of Lords ruled in the Caparo Industries case ruled that auditors were liable to shareholders as a body but not to individual shareholders or investors using the accounts to base investment decisions on. The Caparo decision gave auditors immunity from suits filed by third parties similar to that of doctors and barristers. The Morgan Crucible v Hill Samuel decision by the Court of Appeals has not overruled Caparo, but does extend auditors' liability. The decision has established that auditors have a duty of care if a degree of proximity can be established.

Accounting, auditing, & bookkeeping

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The Caparo case: a Victorian view

Article Abstract:

The House of Lord's Caparo decision enunciated the view that Parliament's enactment of provisions regarding the statutory auditing of the financial statements of public companies was in no way related to the assistance of investors purchasing shares in listed compnies. An examination of a turn-of-the-century parliamentary debate leading up to the first Companies Act reveals that the opposite is true. The records show that even the original Companies Act was drafted with the intent to protect the investing public.

Legislative bodies, Standards, Laws, regulations and rules, Column, Accounting and auditing, Auditing, Financial statements

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