Under what condition may an auditor owe a duty of care to a third party?

Under what condition may an auditor owe a duty of care to a third party?

• A. If a special relationship exists with that third party.
• B. Only to the company.
• C. Only to the directors.
• D. Never to third parties.

Answer: (A)

In auditing, the usual duty is to the client who hires the auditor, but a duty of care to a third party can arise if there is a special relationship between the auditor and that third party. That special relationship exists when the auditor knows the third party will rely on the financial statements and the auditor intends that reliance, or the third party reasonably relies on them. In that scenario, proximity and foreseeability support a duty of care to that third party, as established in cases like Hedley Byrne, and aligned with the broader Caparo idea of duty requiring foreseeability and closeness. Without such a special relationship or reliance, the auditor’s duty remains primarily to the client.

In auditing, the usual duty is to the client who hires the auditor, but a duty of care to a third party can arise if there is a special relationship between the auditor and that third party. That special relationship exists when the auditor knows the third party will rely on the financial statements and the auditor intends that reliance, or the third party reasonably relies on them. In that scenario, proximity and foreseeability support a duty of care to that third party, as established in cases like Hedley Byrne, and aligned with the broader Caparo idea of duty requiring foreseeability and closeness. Without such a special relationship or reliance, the auditor’s duty remains primarily to the client.