AF304 - Revision

Lecture
Chapters 1 - 6 & 8,9
Week 9: Lecture # 1

Special Announcements

Exam Wednesday 5-7m

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Mid-semester exam
Date & Time
16th September
Exam time 5-7pm
Venues
Lecture theatres 092-001 &
U8
Coverage
Chapters 1 6, 8 & 9
including lecture notes
+ tutorials

Format

Chapter 5

Liability to shareholders/clients & 3rd parties.

Auditor liability Cases-name, year, facts, judgment,
principle/concept applied, relevant quotations.
Legal terms tort, plaintiff, defendant, litigation
Professional indemnity/deep-pockets theory
Negligence 4 conditions
Due care to clients & 3rd parties
Reasonable care & skill.
Contractual/Special/causal relationship.
Privity of contract
Contributory negligence/proportionate liability
Reasonable foreseeability, proximity, reliance.
Comfort/Privity letters
Limiting auditors liability.
Cases where damages were awarded.

Chapter 3
Principle

Cases

Laibility

Conditions/Principles

Due care

London & General Bank

(1895)

No

Auditor is not bound to

exercise more than
reasonable care & skill.
Auditor not an insurer

Kingston Cotton Mill (1896)

Due care
but no
negligence

Pacific Acceptance (1970)

Damages
of
$1.5m

Reasonable care &

skill

Caparo (1990)

Watch-dog role
Auditor not bound to be
detective
Persuasive vs conclusive
Changed standards to meet
changed conditions.
10 duties/responsibilities
Professional man owes duty

No

Negligence

AWA case (1995)

JEB Fasteners (1981)

Yes
Negligent
but no
liability

Contributory negligence
Due care, negligent but no
causal connection.

Privity of contract

WA Chip (1987)

Negligent

Contractual relationship

Contributory
negligence

AWA (1995)

Yes

Proportionate liability 1/3 &

2/3

Causal relationship

Caparo (1990)
Segenhoe (1990)
Galoo (1994)

No
Yes
$55m/No

Comfort letters
Reliance
No causal connection

Principle

Cases

Judgment

Conditions

Damages
awarded

Cambridge Credit (1985)

Twomax (1982) (3rd
party)

Yes/$145m
Yes

Negligencedamage
$20m
Reliance & reasonable
foreseeability

Comfort letters

Caparo (1990)

No

Proximity relationship
3 conditions
Duty owed to
shareholders no
individual.

Liability to 3rd
parties
Contractual
relationship

Donoghue
Partners(1932)

No

Physical injury.
Negligence is
redressable.
No contractual
relationship.
Indeterminate class
No contractual
relationship
Disclaimer
Business of giving
advise.
Determinative role of
Reliance

Foreseeability &
Proximity

Candler (1951)
Ultramares Corp.(1931)
Hedley Byrne (1963)
Evatt (1968)
Shaddock & Asso (1981)

Reliance

JEB Fasteners (1981)

Esanda Finance (1994)

No
No
No
No
No
No
No

Exam tips!

Write simple, direct to the point

answers.
You may use bullets or numbers
where appropriate (for e.g. if it says
give 3 examples or state 2 reasons
or outline the number of .- then
actually you should use numbering
system to answer the questions).
Avoid use of paragraphs.
Avoid lengthy answers check for the
marks awarded for that question and
then write answers accordingly.
Hand-writing should be neat, clear and
easy to understand.
Do not use coloured pens or pencils
(you may use either black or blue

Exam tips!

Use a fresh page for each case study.

Do not forget to write the question
number
on the top of the answer booklet.
Label your answers accordingly.
Do not jumble up your questions within each case answers (i.e.
start from the first question in that case and then follow suite).
Do not just write yes or no or agree, disagree. You need to
give reasons to support your answer (justify).
Be careful of the choice of words such as explain, discuss,
list, identify, what, justify etc
Use simple quotations from the case where appropriate (avoid
using lengthy quotations).
Answer all the required questions fully.

End of Lecture

GOOD LUCK FOR YOUR

EXAM