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Auditor's Liability : Judgment Of The SCA In Axiam Holdings Ltd V Deloitte & Touche Under Case Number 303/04.

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FROM THE WRITERS

The Supreme Court of Appeal delivered a judgment last week (1 June 2005), which will have far reaching implications in the context of an auditor's duty of care to third parties.

Deloitte & Touche ("Deloittes") were appointed to conduct an audit and prepare the annual financial statements for the year ending 31 March 1999. On 1 July 1999 Deloittes issued an Auditor's Report which included a certificate containing the following:

"We conducted our audit in accordance with the South African Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual financial statements are free of material misstatements...

In our opinion, these annual financial statements fairly present, in all material respects, the financial position of the company at 31 March 1999 and the results of its operations and cash-flow for the period then ended in accordance with generally accepted accounting practise and in the manner required by the Companies Act".

The appellant contended that, the statements prepared for the 1999 year failed to fairly present the financial position of the company that Deloittes, in conducting the audit and completing the financial statements, failed to comply with the requisite professional and reasonable skill and care and failed to comply with generally accepted accounting practise and that Deloittes, therefore conducted the audit and certifying process of the 1999 statements negligently.

During February 2000, two companies ("the third parties") concluded agreements with the company. It was argued...

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