Cases

Question 1

Re Kingston Cotton Mill Co (1896)

Answer 1

Auditors = “watchdogs not bloodhounds”; reasonable care and skill required

Question 2

McKesson & Robbins (1938)

Answer 2

Highlighted the auditor’s duty to verify the physical existence of distant assets

Question 3

Pacific Acceptance Corp v Forsyth (1970)

Answer 3

Auditors must supervise, report issues, and not over-rely on mgmt in cases of fraud

Question 4

AWA v Deliotte (1991)

Answer 4

Highlighted auditor’s duty to communicate internal control issues.

Question 5

Donoghue v Stevenson (1932)

Answer 5

Forms the foundation for tort law, including negligence by auditors

Question 6

Scott Group v McFarlane (1978)

Answer 6

NZ case where duty can extend to forseeable third parties

Question 7

Caparo Industries v Dickman (1990)

Answer 7

UK case, 3 part test: forseeability, proximity, fariness

Question 8

Cambridge Credit (1985)

Answer 8

Auditor failed on causation of loss (no causation)

Question 9

Esanda v Peat Marwick (1997)

Answer 9

No liability without proven reliance

Question 10

Twomax v Dickson (1983)

Answer 10

Succeeded in 4 elements for negligence

Question 11

R v McKinnon (1998)

Answer 11

Auditor failed to act on red flags

Question 12

Deliotte Haskins (1989)

Answer 12

Responsibility can be shared among parties

Question 13

AIC v ITS Testing (1998)

Answer 13

Greater liability for the party whose actions directly caused the loss