10. Liability of an auditor to third parties:
The auditors are liable to third parties like, creditors, bankers, lenders, debenture holders and other persons or institutions having dealings with the company but are outsiders.
If they suffer any loss by relying on the Balance Sheet or other Statement or Documents signed by him, can he be held liable for damages so caused to any of them?
The auditor is never appointed by the third party and as such, he has nothing to do with such a party. There is virtually no contract between the auditor and the third party.
“The auditor owes no duty of care to anybody but his client and he cannot be held responsible for any loss suffered by third parties though negligence may be proved.” –
(i) The statement signed by him was untrue in fact;
(ii) The person making it knows that it was untrue or was recklessly and consciously ignorant whether it was true or not;
(iv) The plaintiff acted in reliance to it and suffered damages.