Third Party Liability : The Auditor′s Lament

The expectations of users of financial statements have risen in recent years and this phenomenon has impacted directly on auditors who are now becoming increasingly prone to third party action. The duty of care expected of an auditor has been established for some time and has been refined by a number of judgments over the years. In respect of possible third party liability, the concepts of special relationship, proximity and reasonable foreseeability have been examined by the courts through various cases. Despite the principles established in the widely reported British Caparo case, recent legal developments in Australia have cast doubt on its significance in protecting auditors from third party action. The potential for third party liability is an issue that will remain a continuing concern for auditors in the foreseeable future.