In this chapter, we discussed the major sources of an auditor's legal liability as well as the five defences that auditors can use when faced with a lawsuit. Now, it's time for you to find out how these concepts are applied to real-life situations. In 2009, the Honourable Daniel W. Payette of the Superior Court of Quebec rendered a decision in the case Business Development Bank of Canada v. Pfeiffer , which deals specifically with the professional liability of auditors in regard to third parties, especially banks.
REQUIRED
Refer to the article "Limits of Liability" by Jean-Olivier Lessard and Valérie de Grandpré Chapdelaine in the October 2009 edition of CA Magazine , online at www.camagazine.com/archives/print-edition/2009/oct/regulars/camagazine30229. aspx .
a. Review the article and identify why the bank took legal action against the auditors.
b. Identify and list the arguments used by the auditors in their defence.
c. Discuss and assess the arguments used by the auditors and the court's final decision. Do you think the bank should have been held partially liable for its losses despite relying on the audited financial statements? Consider in your discussion whether the underlying cause of this conflict can be partially linked to the concept of the "expectations gap" that exists between financial statement users and auditors.