The Responsibilities of Auditors

Feilding Star, Volume IX, Issue 153, 26 July 1888, Page 3

The Responsibilities of Auditors

The following extract from the April number of the Law Quarterly Review is of special interest to directors and managers, and auditors of companies : — " Leeds Estate Building Company v. Shepherd (36, Ch., D., 757), calls to mind the amusing passage in Lucian's Dialogues of the Dead, in which the chief actors in the Trojan war, meeting in Hades, try to shift the blame on to each other — Menelaus on Helen, Helen on Paris, Paris on Aphrodite, and so on. In vain ! for Rhadamanthus, in the person of Mr Justice Stirling, has fixed directors, manager, and auditor alike with liability. This is the first occasion on which auditors have been held liable or their duties defined. An auditor must not confine himself merely to the task of verifying the arithmetical accuracy of the balancesheet, but must inquire into its substantial accuracy ; must ascertain that it contains a proper income and expenditure account, and a true and correct representation of the state of the company's affairs. Anything less than this would make auditing illusory — a mere sham. This decision effectually dispels the notion that an auditor, because he is paid only a small fee, may perform his duties in a perfunctionary manner, or rather not at all. It dispels, too, the notion that the directors can evade liability by professing ignorance of the mode in which the balance-sheets have been prepared, and of inaccuracies in them, and saying (even truthfully) that they trusted to the manager and auditors. Directors are entitled to employ skill? d agents such as auditors, and to rely on their reports ; but, lite trustees, they cannot delegate tbe\r responsibilities to such agents. They must exercise their own judgment as business men on the reports and bal-ance-sheets submitted to them — must apply their minds to them, just as trustees must to an investment approved by their valuer. In a word, they, like auditors, must do their duty. Utopia was a great success, because all the Utopians were reasonabe, virtuous, and obedient. If directors, promoters, managers, auditors, and secretaries could all be got to do their duty, what might not the city become ?"