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Auditors in Australia and around the world face challenges and criticism because of corporate collapses, as they are associated to professional negligence allegations and breach of the statutory duties1. These allegations demonstrate the role of the current court system in…
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Download file to see previous pages The two policy reforms considered in Australia include the proportionate liability and statutory capping schemes2. The various professional bodies governing auditing in Australia determine application of statutory capping. Nonetheless, statutory capping has various negative policy implications. One, it is a disadvantage to third parties who may be innocent victims of the auditors negligence. Two, it may induce the auditors to charge lower fees as they would expect to pay damages in case of a legal suit. Third, it allows for government interference in the auditing profession, which would hinder the independence of auditors.
One. Tel Communication company reported losses of $290 million as a result, its share price collapsed and the directors were sued for negligence. ASIC sued Jodee Rich and Mark Silberman for failing to meet their duty of care causing the collapse of the company in May 2009. ASIC claimed that by failing to communicate true financial performance and financial position of the company, these directors did not exercise due care and diligence, which resulted to the cancellation of the proposed rights issue in 20013.
The directors were found not guilty of negligence on accounts that the summary presented by ASIC about Mr. Rich’s evidence was considered as false. The judge also implemented the business judgment rule under the Corporations Act 2001, Section 180(2). Directors whose conduct breached section 180(1) were provided defense in the business judgment rule4.
HIH Insurance was among the biggest insurance companies in Australia. However, in March 2001, the company lost a value of about $5.3 billion and, in turn, became insolvent. Some management member was sued for fraud after the Prime minister, John Howard, created the Royal Commission to investigate the collapse of the company. Rodney, the main defendant, had three unsecured loan ...Download file to see next pagesRead More
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