An Analysis of the Auditors’ Liability to Third Parties in Australia

In recent decades, there has been a global upsurge in the number of corporate collapses and litigation claims by third parties, which have partly been explained by the economic recession occurring in the late 1980's. However, auditing professions in both Australia and around the world have encountered many difficulties and criticisms in recent years, as a result of corporate collapses being linked to allegations of professional negligence and the breach of statutory duties. An example of high profile collapses occurring in Australia includes the failures of HIH Insurance, Ansett and One Tel. In addition, overseas collapses include Enron Corporation and WorldCom in the United States. These allegations illustrate the seriousness of the current legal environment for the auditing profession, government and third parties. Thus, there is a continuing interest in understanding the law regarding auditors' liability, given the large litigation claims brought by third parties ‘and the escalation costs of indemnity insurance cover in North America, Europe and Australia'