What Is The Liability Of An Auditor In Case Of Misfeasance?


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After a company has gone into liquidations, misfeasance proceeding can be instituted against the auditor by:

• Liquidator
• The creditor
• A contributory of the company.

The term misfeasance means breach of duty involving the company in a loss. Under section 412 when a company is in liquidation its part and present directors, promoters, managing agents and auditors are liable to make good all losses sustained by the company on account of negligence of duty or breach of trust if manifesance proceeding are initiated against him within the prescribed time. Some of the leading decided cases in this respect are explained in many cases.

There was an appeal by one of the auditors against a judgment by Vaughan Williams by which the auditors were declared liable for the payment by the company of certain dividends out of capital. It having been decided by the court of appeal in the previous action in connection with this liquidation that the auditor of the limited company is an officer of the company and therefore liable for misfeasance proceedings. The auditor had neglected to bring to the notice of the shareholders that the assets shown in the balance of the company were over valued leading to a payment of dividends out of capital. The auditor of the company was charged of negligence for having relied upon stock sheets are prepared by the officers of the company which were designed by the manager of the company.

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