Auditors’ Liability To Third Parties: An Emerging Defence – Part I

Interesting policy issues arise when auditors of corporations whose management has fraudulently misrepresented the company's financial statements find themselves defending claims brought on behalf of the corporation by entities such as trustees, receivers, and liquidators. The question then becomes: should the corporation, or those standing in its shoes, be able to rely on the company's own illegal conduct to recover damages? In the United States (U.S.), such claims are often met with the defence of in pari delicto.

Because a corporation can only act through its officers and directors, in pari delicto rests upon principles of agency and corporate attribution. Where the actions of officers and directors can be reasonably imputed or attributed to the corporation, it is not necessary to precisely weigh culpability; if the malfeasant acts of the officers and agents are equally or more responsible than those of the defendant auditors for the wrong upon which the claim is