Ruling On Liability For Firm’s Accounts

Press, Volume CVIII, Issue 31655, 16 April 1968, Page 12

Ruling On Liability For Firm’s Accounts

IN.Z. Press Association) I WELLINGTON, April 14. I Accountants and auditors i should not be liable for negligence in the preparaI tion and certifying of accounts of a company when I they had no knowledge that the accounts would be submitted to and relied upon by potential purchasers of the company, Mr Justice Tompkins ruled in a judgment delivered last week. The plaintiffs had acquired a company from the defendants and later claimed that the assets in the balance sheet had been overstated and the liabilities understated. As well as taking action against the former owners of the company, they had named the accountant who prepared the balance sheet, and the auditors who certified it, as second and third defendants. Dismissing the claim, his Honour said accountants who

prepared an annual balance sheet could not by that fact alone be under a liability to third parties for negligence in the preparation of that balance sheet. “If this were not so, there would be a startling and new general liability upon all auditors to third parties, of whose existence they were quite unaware at the time of making the report. And, fur thermore, when the accounts were put to a use not within their knowledge when the ac counts were prepared. “I do not think it makes any difference that, after they had been prepared and certified without knowledge that they would be used to show to a potential purchaser of shares, they were shown by one of the auditors to such a, purchaser," he said. He did not think auditors certifying such a balance sheet entered into an implied voluntary undertaking to as-

sume responsibility if the accounts were prepared negligently, and if a third party subsequently relied upon them to his detriment, said his Honour.