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Business Law Essay

1706 words - 7 pages

Business Law MLC 101By Adam MatherStudent ID: 2133568271. PolicyFrom the topic of this essay we consider to whether auditors owe a duty to take reasonable care when auditing a company. Firstly an auditor's job is to study, expect and analyse the accounts of the company and draw conclusions or make a decision whether the financial position of the company in itself is factual or accurate in terms of where they actually stand it that point of time. So from this we question whether the law of misrepresentation should apply fully to auditors. This has proved problematic for the courts as it has serious occupational or business repercussions in which the clarification or result of the decision made depends on policy considerations rather than purely legal ones. It has to be then considered who auditors owe a duty of reasonable care when auditing the company. The parties involved that they might owe reasonable care when auditing a company can include shareholders, potential investors, bankers and creditors. When taking in consideration whether auditors owe a duty of care to a company we can say that if a auditor has a contract with the company itself the auditor has to fulfil the contractual obligations of taking reasonable care in preparing the audit, they also owe a duty of care in tort to the company.However in the case of shareholders, investors and lenders this is different because they do not have a contract with the auditor. So in this case there is no duty owed to these groups in contract law so the only way they can successfully sue in the court of law is through tort. To successfully sue they will have to prove the auditor owed them a duty of care.Brendan Sweeney, Jennifer O'Reilly and Andrew Coleman, Law in Commerce (LexisNexis Butterworths Australia, 5th Ed, 2013) 117-118.2.The first case that will be discussed is the Bathurst Council and Local Government Financial Services Pty Ltd (No5). In this case the main issue was whether ABN and S&P breached their duty of care. S&P argued that they didn't owe duty of care because the same principles should be followed from the first main law case of Essanda vs PMH. In this case the council sued ABN and S&P for negligence in breaching section 18 of the Australian Consumer Law. This Act states that "A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive." In this case they argued that they mislead them on the credit reports reliability or true value. However in this case the judges decided that a duty of care was owed because Essanda Finance involved a completely different "factual context." This is because ABN and S&P where given the assignment of providing a rating to a financial instrument which would communicate to the protracted investors whether an investment should be made or not. In this case the investors made an investment after the rating was provided and they made a loss because of the economic crisis that...

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