From the US, we learn of a case on auditor liability which - for once - resists the urge to extend auditor liability to non-shareholders. Grant Thornton LLP v. Prospect High Income Fund and others found that:

Certified accountants audit companies for many purposes, not least of which is to provide corporate directors with an objective assessment of their companies’ performance. Audits are also prepared to give information to a specific investor who the auditor knows will rely on its contents. We must decide whether the law imposes an obligation on the auditor to provide an accurate accounting not to the corporation or known investor, but to anyone who reads and relies on it. We conclude that it does not. Likewise, we hold that the particular investors involved in this case could not have justifiably relied on the audit reports as to purchases made after they knew the corporation was at risk of financial ruin, and they may not substitute their escrow agent’s reliance for their own without also being bound by its knowledge. Finally, we reject the investors’ “holder” claims—claims not that they bought or sold securities based on the auditor’s reports, but that they held them when they otherwise would not have—in the absence of a direct communication with the auditors.

Needless to say, this is helpful to auditors.  It makes it much more difficult for a non-shareholder to claim that they were misled on the basis of the audit opinion alone.  Where there is other evidence of a company's precarious position, potential investors must take account of it.

I'm sure the audit profession will heave a sigh of relief at this fairly commonsense ruling.

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Filed under: Auditing, Regulation with tags audit liability, grant thornton, lawyers