John Mutiso bought shares of Sh.2 million six months ago in Kenya Company Limited which has since gone into liquidation. He intends to sue XYZ & Co. Certified Public Accountants for the imminent loss of Sh. 2 million which he is likely to suffer. XYZ & Co. had audited the Kenya Company Ltd. The previous year and issued an unqualified report. John Mutiso claims that he solely relied on the audit report when he took that investment decision.Required:What circumstances must Mr. John Mutiso demonstrate if he has to succeed against the auditors?

Mr. Mutiso must prove that: –
i That XYZ company indeed carried out the audit work negligently
ii That as a direct consequence of XYZ‘s negligence he suffered financial loss
iii That XYZ knew or ought to have known that the accounts will be relied upon for investment decisions by John Mutiso i.e prove that XYZ Co. owed him a duty of care.
iv That Mr. Mutiso actually relied on the report. No other external auditors whatsoever influenced his decision making but just that of the audit report.



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