Skip to content

ACCA Applied Skills · Corporate and Business Law (Global) · Other company officers

Orion Ltd's auditor negligently failed to detect a material overstatement of inventory. Tavish, an existing shareholder, relied on the audited accounts when deciding to buy more shares in the company. Which statement best describes the auditor's position under the leading negligence principle?

The auditor owes no duty to Tavish. The auditor's duty of care is owed to the company as a whole, and the accounts exist to enable shareholders to oversee management, not to guide individual decisions to buy shares, so a negligence claim by Tavish fails.

  1. AThe auditor owes no duty to Tavish, because the auditor's duty is owed to the company as a whole and the accounts were not prepared to guide individual share purchasesCorrect
  2. BThe auditor is automatically liable to every shareholder who relies on the accounts
  3. CThe auditor is liable to Tavish because he is a shareholder and so is in a contract with the auditor

Explanation

The auditor's duty is owed to the company, not to individual shareholders who rely on the accounts for investment decisions such as buying more shares. There is no contract between the auditor and the shareholder, and no automatic liability to all those who rely.

Did you get it right without looking?

One question tells you little. A timed set on Other company officers shows your real accuracy, how long you take and where you lose marks.

Practise Other company officersFree diagnostic mock

More Other company officers questions