04. Professional advice and negligent misstatement.

Question 1

The two principal differences between negligent misstatement and other forms of negligence.

Answer 1

-it stems from words rather than actions
-its damage is purely financial

Question 2

A professional may owe a duty of care (instead of / in addition to) any contractual obligations.

Answer 2

in addition to

Question 3

A duty of care may be owed by a professional to somebody who … on their advice.

Answer 3

relies

Question 4

Prior to Hedley Byrne v Heller, economic or financial loss resulting from negligent misstatement was not recoverable unless there was …

Answer 4

-contractual liablility
-evidence of fraud or deceit

Question 5

Prior to …, economic or financial loss resulting from negligent misstatement was not recoverable unless there was either contractual liability or evidence of fraud or deceit.

Answer 5

Hedley Byrne v Heller

Question 6

The case which established the modern approach to negligent misstatement; that somebody giving professional or expert advice owes a duty of care to persons relying on that advice.

Answer 6

Hedley Byrne v Heller (1963)

Question 7

A duty of care (does / does not) exist in respect of advice given informally or on a social occasion.

Answer 7

does not

Question 8

Notwithstanding the breach of a duty of care, a successfull claimant for damages must show …

Answer 8

causation

Question 9

If a claimant cannot show their loss was caused by their reliance on a negligent misstatment of a professional, then …

Answer 9

their claim for negligence will fail.

Question 10

The case which established that an an audit report or other statement for general circulation is not sufficent to establish a duty of care between its preparer and an unidentified third party.

Answer 10

Caparo v Dickman (1990)

Question 11

An auditor owes a duty of care to …

Answer 11

the members (shareholders) of the company as a whole.

Question 12

An auditor (does / does not) owe a duty of care to a potential takeover bidder.

Answer 12

does not

Question 13

If a third party to whom a report is NOT addressed relies on the information …

Answer 13

then the preparer does NOT owe a duty of care to that person.

Question 14

A duty of care is owed only by professionals …

Answer 14

to identified persons reliant upon advice given in a professional context.

Question 15

The case which established that a third party can be owed a duty of care where the auditors know their identity, the use to which the information will be put and their reliance on it.

Answer 15

RBS v Bannerman (2005)

Question 16

Factors determining potential liability for negligent misstatement:

RE…

RE…

RE…

RE…

Answer 16

Factors determining potential liability for negligent misstatement:

REason

RElationship

REsponsibility

REliance

Question 17

An auditor commits an offence under s. 507 of the Companies Act (2006) if he KoR* causes an auditor’s report to include any matter that is MFoD in a MP.

Answer 17

knowingly or recklessly

Question 18

An auditor commits an offence under s. 507 of the Companies Act (2006) if he KoR causes an auditor’s report to include any matter that is MFoD* in a MP.

Answer 18

misleading, false or deceptive

Question 19

An auditor commits an offence under s. 507 of the Companies Act (2006) if he KoR causes an auditor’s report to include any matter that is MFoD in a MP*.

Answer 19

material particular

Question 20

The offence of knowkingly or recklessly causing an auditor’s report to include a matter that is misleading, false or deceptive in a material particular is punishable by …

Answer 20

fine

Question 21

The only methods by which an auditor may limit their professional liability to a CLIENT are …

Answer 21

indemnity for costs against successfully defending proceedings

or

a liability limitation agreement