George

Both gaucheries had resulted in the growing number of third parties which urinate a legal right to sue auditor for negligence. In separate word, auditors liability to third parties has Increased. The def devastationants had all relied on the accounts In taking and cypher the price of shares in the knitwear comp some(prenominal). In the case of Thomas Ltd. , ?56,100 in the case of Goode, E,500 and, in the case of Gordon, El ,500. Thomas Limited grease ones palmsd 16,000 ordinary shares in Kinkier in November 1973 which shares were formerly held by a Mr. Saurian, a director of Kinkier. That purchase was at E10 per share.In addition Thomas purchased a newly Issue of Kinkier shares, namely 15,000 at El 50 per share. It Is appealed for all cardinal pursuers that in reservation these purchases they relied upon balance sheets and accounts prepared and audited by the defenders. Thomas, they also plead that they relied upon advice given by Mr. Mainframe at meetings held prior to the conclusion of the obligation to purchase the 31,000 shares. It is utter that the audited accounts prepared by the defenders for long time prior to 1975 had been super misleading and inaccurate. Mr. Mainframe, acted negligently and Incompetently In the preparation and auditing of Skinners accounts.Instead of trading profitably the say Kinkier Knitwear Limited had in fact been trading at a loss both before and after the purchase of the said shares, figures which were of contingent significance to Thomas were those of the trading profits and losses. This failure was, in my view, because of easy and carry onless auditing methods. The pursuers averred-?The defenders completely failed to shake any(prenominal) check on the said Kinkier Knitwear Limiters system of tock control or the basis of valuation of the stock. As a result the stock figures provided In said accounts were seriously Inaccurate. For some years the defenders had failed to carry out normal checks of credit and debi t balances. The defenders had completely failed to make provision in said accounts for a doubtful debt reserve which they ought to suck up done. They failed to carry out the normal checks to establish that debts stated by the political party to be due were in fact due as any competent auditors would gain done before certifying the said accounts. Competent auditors making the appropriate checks In carrying out an audit of the said Kinkier Knitwear Limited and preparing said accounts would have discovered these inaccuracies and noted them in said accounts.The figure could swell up have been much higher because a number of old debts install to be still on the books when the check was made in 1976 or 1977 did not carry the date when they were incurred. The figure of E,662 Is, therefore, a minimum. I have the Impression from the fact that Mr. Mainframe made no attempt to circularities any debtors for the 1973 audit or even to go ay be due to a greater extent to good luck than to goo d Judgment on his part. I am therefore satisfied that the accounts to 31st March 1973 were negligently prepared by the defenders and negligently audited by Mr. Mainframe.When weighed against what was said by the pursuers witnesses, and accepted by me, to be the methods of an auditor exercising reasonable care and attainment his methods were sadly wanting. =Len the end of the day these Justifications came down to this that the shareholders, to whom his firm owed certain duties as auditors, were all directors and in particular to the inconsideration that he was a close soulfulnessal companion of Mr. Lennox whom he had known since childhood and not only trusted him just now also trusted other staff of the company.I consider that it follows and that it should now be regarded as settled that if someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies on such skill, a duty of care will arise. = =He knew that auditors certificates, when they were clean certificates, were commonly relied on by shareholders, potential investors, and potential lenders.In the whole mickle I consider that Mr. Mainframe should have foreseen before he bear witness the 1973 accounts that these accounts might be relied on by a potential investor for the persona of deciding whether or not to invest. To these, the latest audited accounts of the company would be of genuinely great importance in influencing them whether or not to invest and at what price. L, therefore, consider that in respect of Thomas and Mr. Gordon, both being in the class of persons who were potential investors, Mr. Mainframe owed a prima facie duty of care in the auditing of the 1973 accounts.