(b) No duty of care to ensure that Crystal Wealth was compliant with Ontario securities laws. Doing a Duty of Care Audit is essential. Auditor’s Duty of Care. An auditor must act honestly and with reasonable care and skill; otherwise he may be sued for damages. “Due care” is a term used to refer to the degree of care that a “reasonable person” would take in a particular situation. … Those allegations included assumed “facts” that were not present in the Lavender case that would seem to be significant – the BDO audit reports were addressed directly to the unitholders; BDO knew the identities of all the unitholders and the unitholders relied upon the audited financial reports. more likely to result in an auditor being subject to a law suit. Here, culture, values and commitment aren't abstract concepts. The Form 9 Reports therefore were submitted purely for regulatory purposes and not for informing or inducing class members to make decisions; The auditors did not even know the identities of the investors; The statutory scheme required Buckingham to segregate assets, maintain net free capital, and file a Form 9 to confirm that it had met the regulatory requirements. However, before we can assist you, we must first ensure that we do not have a conflict of interest. whose reliance is FORESEEN by the auditor. The Plaintiffs were individual unitholders in the mutual funds of Crystal Wealth Management System Ltd. The value of all units in the funds was thereby impaired. <>>> Arguably, the effect has been to narrow the categories in which auditors have been held  owe duty of care to third parties and bring the case law into conformity with both the principles that were articulated in Hercules Managements and also the professional standards to which auditors must adhere. Your aunt has just died. Although the Supreme Court was deeply divided on key issues, it confirmed that its 1997 decision in Hercules remains the law regarding there generally being no duty of care of an auditor to persons other than its client (e.g., shareholders) in relation to an audit. As both the Whitehouse and Lavender decisions demonstrate, the Supreme Court of Canada’s Livent decision has brought greater rigour to the legal analysis of whether there is a relationship of sufficient proximity to ground a duty of care in cases in which auditors are sued by third parties. Duty to take reasonable care not to cause harm to another person that could be reasonably foreseen. The auditor must take reasonable care to ascertain that books furnished by the company show the company's true position. Whether providing services as an accountant or auditor, a certified public accountant (CPA) owes a duty of care to the client and third parties who foreseeably rely on the accountant's work. stream ��{}f����Z�~b/T3/t��B=�Bg1ҕ)�:��PӼ�[ץ�.tS�RU��nD��=F;^��B�QNV���B�QVT��zD��(SW��b������%]FI�e�"��>��gxSD��gW��.�+'QF��gd�+[��B����D�f There is no reliance upon the audited financial reports by the investors. ��-���U According to the Supreme Court of Canada, recognition of a duty of care in a claim for pure economic loss requires more scrutiny than other negligence claims. x��\YoG~��Џd�M�=�! As with the rest of the Dsposal software it can be used on a smart phone, tablet, laptop or desktop computer. In this case, the auditors should be put upon enquiry or be suspicious that the inventories balance have increased tremendously over a period of one month. Let us consider the possible entities that may sue an auditor and the possible reason for a lawsuit. The relationship between BDO and the unitholders is a conceit of the Securities Act and involves the interposition of the OSC. Accountants can … Under Hercules Managements, the court recognized that there were lots of third parties … He found that the motion could be decided by a consideration of the current three leading cases in Ontario on the duty of care owed by auditors to third parties: Hercules Managements Ltd. v Ernst & Young, [1997] 2 S.C.R. Auditor owes a duty of care to ensure that accounts are correctly described in the financial reports High standard of care of auditors providing services to SMSF trustees, particularly when such trustees lack … There was no pleading of any direct relationship, undertaking, or representation by BDO to the investors and no allegation of any direct contact between BDO and the investors. They lost their life savings and blamed BDO Canada LLP, which audited Crystal Wealth’s financial statements and issued clean audit opinions in the years 2009 to 2016. Nevertheless, a duty of care to third parties, such view the … The only duty of care the auditor`s owed was to the governance of the firm. A duty of care is the legal responsibility of a person or organization to avoid any behaviors or omissions that could reasonably be foreseen to cause harm to others. Toronto, ON M5H 3P5. The class members did not see or rely upon the Form 9 Reports, which were submitted to the OSC confidentially. In Lavender, the issue was decided on a summary judgment motion, as a result of which the court had a full evidentiary record. %���� �T_:? Failure to uphold the duty of care may result in legal action … ͍⑀��; ,9����~C>u��@�[�;y�Ŋ�E)y��ͮ�h�j��@D$v[�p"x��#U�"_e ������ ���A`7t��n���:�Hy�v� u�QC�B8&��6A��&�C��nN�:�A Ultimately, the court found that the plaintiffs had no claim against BDO because it did not owe them a duty of care. Furthermore, this survey has practical implications for auditors because the explicit clarification of the auditors’ responsibility may motivate auditors to increase due professional care and take more responsibility for fraud detection in the audit … 3 0 obj We'll be happy to refer to you the right qualified Lerners lawyer. Paragraph 41(c) of ISA (NZ) 700 (Revised) allows the description of the auditor’s responsibilities to be moved out of the auditor’s report and referred instead to a website of an appropriate authority.. It focussed on the proximity of the relationship between the plaintiff and the auditor to determine whether a duty of care existed (specifically, the scope of the defendant’s undertaking of responsibility and the plaintiff’s reasonable reliance). Blog Home » Jonathan’s Jots » Auditor’s Duty of Care. This theory of a duty of care did not depend upon the unitholders relying on, or even seeing, the audited financial statements. The only direct relationship in the immediate case is between BDO and Crystal Wealth. �B�J���B��V�FL!A��u�Fl!A�$E:qe�L1�H'M!A� Civil law, in contrast, deals with disputes between individuals and/or organisations. Lord Bridge commented that cases where duty of care did arise10 was illustrated in Smith v … In Lavender, the plaintiffs invested in the securities of Buckingham Securities. The Court of Appeal held that an auditor does not owe a duty of care to account … This Duty of Care document is semi-populated by the data held on the Dsposal platform. THE AUDIT REPORT AND AUDITORS’ DUTY OF CARE TO THIRD PARTIES May 2018 This guidance was issued by the Audit and Assurance Faculty of the Institute of Chartered Accountants in England and Wales in January 2003, to assist auditors in managing the risk of inadvertently assuming a duty of care to third parties in relation to their audit reports. Therefore, in. 8�w��H��4�t `�M��. January 10, 2017; jpitblado; Uncategorised; 0 Comments; For almost 20 years now, pursuant to a 1998 Supreme Court case, auditors … There was not a sufficient relationship of proximity because: The motion judge in Whitehouse v BDO found that the duty of care analysis was the same as in the Lavender case, and he was bound by it. Those professional standards require auditors use appropriate accounting procedures to obtain “reasonable assurance” that the financial statements, as a whole, are free from material misstatement, whether caused by error or fraud. This approach generally includes considerations of the risk of indeterminacy. We look forward to speaking to you. endobj The words, “The financial statements are the responsibility of management,” appear prominently in an auditor’s communications, including the audit report. On September 5 the Court of Appeal for Ontario issued its decision in Lavender v. Miller Bernstein LLP, 2018 ONCA 729. She has what you would consider to be a ... Yola Ventresca, Sarah Martens and Natalie Carrothers review the Divisional Court decision in College of Nurses of Ontario v Mark Dumchin and the unanswered questions the decision ... Consulted and recognized province wide in Ontario. ��J���ǁ�Y���\����ꦪͮ��N AL�M��Hc������뗬>z3�]��t6����� �iw�뼚6ܠ������hAQH��j����z The Statement of Claim seeks a declaration that BDO had a duty of care to the Class Members, which it breached in negligently performing professional services, thereby causing damages of over $150 million. When success matters, there is no substitute for the advantage that comes from experience. (ii) Duty of Care According to Caparo case in the UK, the auditors owe a duty of care … %PDF-1.5 Feel free to reach out directly by visiting my Lerners Profile, Stretching the Limits of Statutory Interpretation: The implications of College of Nurses of Ontario v Mark Dumchin on the jurisdiction of regulated health colleges over former members, Junior Law Clerk, Plaintiff Personal Injury, Litigation by the PGT to protect vulnerable individuals: more important than ever in this age of COVID-19, No Clucks Given: Ontario Court of Appeal Expands Scope of Anti-SLAPP Provisions in Subway v CBC, A Self-Represented Litigant’s Entitlement to Costs: Girao v. Cunningham, 2021 ONCA 18, tbk Creative | Web Design & Digital Marketing. Reliance and legal responsibility and what the parties knew or ought to have known or what the parties could rely on is based upon the statutory provisions of the Securities Act. An accountant may be liable for negligence, not only in contract but in tort, if a person to whom he or she owed a duty of care has suffered loss as a result of the accountant’s negligence. D. auditors have a duty of care only to the shareholders as a group. For example, due care is expected when someone mails a package. However, the duty of care analysis allowed for a consideration of public policy factors, primarily the risk of indeterminate liability, to negate the duty of care by auditors to third parties in many circumstances. Under common law, auditor owes a duty of care and should exercise reasonable care and skill when … The proximity analysis requires the court to embark upon a fact-specific inquiry to identify all relevant factors that arise from the relationship between the parties; The relevant factors vary from case to case and may include reliance, expectations, representations, property or other interests, and statutory obligations; In cases of pure economic loss arising from negligent misrepresentation or negligent performance of a service, the auditor’s undertaking and the investors’ reliance are determinative; The plaintiff investors must establish that the relationship between the parties was such that the auditor may be said to be under an obligation to be mindful of the investors’ legitimate interests; The following factors militate against a finding of proximity: The auditor has made no undertaking to assist the investors in making investment decisions; The auditor has made no representations to the investors; There is no direct connection between the auditor and the investors (such as when there is an interposition of a securities regulator and the corporation between the auditor and the investors); and. 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