An injured party must prove ALL of the following three things in order to succeed in a claim for financial loss against an auditor for negligence:
That the auditor owes a duty of care;
That the duty of care has been breached;
That financial loss has been suffered that was caused by the negligence.

(i) Looking at the strict interpretation of the first requirement, the auditor owes a duty of care only to the shareholders as a body and not to Adom Bank Limited as an outsider. The courts, however, have accepted that if the auditor, at the time of signing the report knew that someone, other than the shareholders as a body will rely on the report, then the duty of care extends to the person. The facts of this case show that at the time the auditor signed the auditor’s report, he was aware that it was financial statements going to form the basis for preparing the projected financial information to be used to seek for the bank facility from Adom Bank Limited. This means it is probable that a court will rule that requirement 1 above has been proved.

(ii) A breach of duty of care must be proved for a negligence claim against the audit firm to be successful. Duty of care generally means that the audit firm must perform the audit work to the required standard and that relevant legal and professional requirements and principles have been followed. For an audit firm, it is important to be able to demonstrate that ISAs have been adhered to. There is no evidence in the facts as given to enable us to reach the conclusion that the duty of care has been breached or not. Looking at the fact that a loss of GH¢4.3M was stated as a profit of GH¢20.2M, a difference of GH¢24.5M, if this error in the statement of profit or loss is confirmed, it is likely to be interpreted by a court to mean that the auditor did not perform the duties expected of him/her with all the skill, care and caution which a reasonably competent, careful and cautious auditor would use. What is reasonable skill, care and caution will depend on the particular circumstances of each case.
In this case, however, an error is material by all standards and will be proof that the auditor has acted negligently unless he can prove that the circumstance that caused this material error was beyond his/her control.
Requirement 2 appears to be likely to be proved.

(iii) Requirement 3 is easy to prove since the loan was given on the basis of the projected financial information based on the audited financial statements, it is likely that a court will not need any serious persuasion to agree with the bank that its financial loss was caused by the negligence of the auditor. From this discussion, the auditors must seek an out of court settlement to avoid the bad publicity and likely litigation costs since it is probable that they would be found to be professionally liable to the bank and the bank is likely to sue the auditor for negligence.