Auditor Not Liable for Not Detecting Illegality


A spirited attempt by a company, controlled by a single director, to blame its auditors for not detecting fraud was recently rejected by the House of Lords.
The liquidator of the company brought a claim for damages on behalf of the company against the auditors for failing to detect the frauds carried out by its sole director.
The main issue was whether a director’s illegal acts and intentions could be imputed to the company. In this instance, all those concerned with the management of the company had knowledge of the fraud. Accordingly, awareness of the fraud was imputed to the company and the claim therefore failed on the basis that a claim cannot be brought which arises from one’s own criminal conduct.

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