The Legal Action For Negligence Against Jimmy Farnham And Aussie Outback Tours Ltd
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The major shareholder might not be successful in the legal action for negligence against Jimmy Farnham. This is because the audit firm was not under a contract agreement with the major shareholder, and the fact that the major shareholder can be considered a third party in the contract between Jimmy Farnham and Aussie Outback Tours Ltd. The law is not definitively clear on the auditor’s liability to third parties (Porter, Ó hÓgartaigh & Baskerville, 2012). An auditor owes a duty of care to their direct client, and any damages incurred by the client due to negligence on the part of the auditor makes the auditor liable in terms of contract and also in tort (Nguyen & Rajapakse, 2008). A claim of liability by a third party to an…show more content… He had advised the client to assign the review and evaluation of the new database to an independent contractor. The fact that Jimmy was not familiar with the new system of accounting that the client was implementing and therefore not involved in the changeover process absolves him and his audit firm from direct liability. It is also hard to prove that the error in material inventory that resulted from the changeover was committed when Jimmy was auditing the firm or at the instance of feeding the data into the system. Admittance to liability is also dependent on whether the auditor had placed disclaimers of responsibility in the preparation of the audit reports.
The criteria for the determination of the auditor’s liability to other parties apart from the clients are as follows:
• The defendant must have reasonably foreseen that the statements would be put to use by the plaintiff
• A relevant degree of proximity must exist between the parties involved in the litigation
• The imposition of a duty for care by the plaintiff on the defendant must be just and reasonable (Davies, 1991; ACCA, 2009).
There is no evidence presented in the case above to the effect that the defendant was aware of the likelihood of the judgements he made being used as a basis to make judgement by the plaintiff. The plaintiff also has a hard tasks of proving that there was a close proximity between them and