AN UNUSUAL ACTION.

Manawatu Herald, Volume XLIX, Issue 3792, 15 May 1928, Page 1

AN UNUSUAL ACTION.

AN AUDITOR’S RESPONSIBILITY. A judgment in the Supreme Coui’t in Christchurch serves to direct attention to the responsibilities which are associated with the practice of auditing. It was upon an action in which damages were claimed for a dereliction of duty on the part of an auditor resulting in considerable monetary loss being suffered by the company that employed the auditor, and the effect of the judgment was that the company was entitled to recover from the auditor the amount of certain defalcations that had not been detected in the course of the audit. The auditor’s neglect consisted in his acceptance, without verification, of a statement of bills receivable that was submitted by a defalcating accountant. The action was an unusual one, and possibly novel in New Zealand, but there are a number of recorded cases in which the law relating to the duties of auditors has been precisely and explicitly laid down. In general terms the duty of an auditor is to bring to bear upon the work he has to perform that skill, care, and caution which a reasonably competent, careful, and cautious auditor would use. It was said by an English judge in one case, which Mi’. Justice Adams quoted, that an auditor is not bound to be a detective nor need he approach his work with suspicion or with a foregone conclusion that something is wrong, and that for this reason he is to be regarded as a watchdog, not as a bloodhound. But although an auditor may be justified in‘trusting tried servants in whom a company reposes confidence, the auditor in this instance seems, to have been aware of an earlier act of misconduct on the part of the accountant of the firm by which he was employed and to have omitted to comply with express instructions to keep a close watch on him. The doubt has sometimes been expressed whether the necessity of a strict audit is perceived by societies and institutions whose accounts do not run into large figures, and whether they do not incur a possible risk in the employment ■ of persons as auditors who are not ; fully qualified for the task and may not realise the ties of their office. Moreover, the facts that were proved in the ease which Mr. Justice Adams has just decided suggest that appreciate the measure of the responsibility that is undertaken by them. The decision in it will prove useful if it has, as it should have, the effect of impressing upon persons engaged as auditors that particular verification of all material statements submitted to them is essential to the discharge of their duties, and that any dereliction of duty on their part may expose them to serious penalties. —Otago Daily Times.