South Africa: Supreme Court of Appeal considers role and duties of auditors

The Supreme Court of Appeal gave judgment last week in PriceWaterhouseCoopers Inc v National Potato Co-operative Ltd (451/12) [2015] ZASCA 2, an important decision concerning the role and duties of auditors: see here or here (pdf). A summary of the decision is available here (pdf). With regard to the role of the auditor, the court endorsed the following view of Bingham LJ (as expressed in Caparo Industries plc v Dickman [1989] 1 All ER 798 (CA) at 804a-e):

At the heart of this case lies the role of the statutory auditor. That role is, I think, without close analogy. Its peculiar characteristics derive from the nature of the public limited liability company. The members, or shareholders, of the company are its owners. But they are too numerous, and in most cases too unskilled, to undertake the day-to-day management of that which they own. So responsibility for day-to-day management of the company is delegated to directors. The shareholders, despite their overall powers of control, are in most companies for most of the time investors and little more. But it would, of course, be unsatisfactory and open to abuse if the shareholders received no report on the financial stewardship of their investment save from those to whom the stewardship had been entrusted. So provision is made for the company in general meeting to appoint an auditor … whose duty is to investigate and form an opinion on the adequacy of the company's accounting records and returns, and the correspondence between the company's accounting records and returns and its accounts … The auditor has then to report to the company's members (among other things) whether in his opinion the company's accounts give a true and fair view of the company's financial position … In carrying out his investigation and in forming his opinion the auditor necessarily works very closely with the directors and officers of the company. He receives his remuneration from the company. He naturally, and rightly, regards the company as his client. But he is employed by the company to exercise his professional skill and judgment for the purpose of giving the shareholders an independent report on the reliability of the company’s accounts and thus on their investment".