\L_KU_K hat are the legal responsibilities of an au-ditor today? Two court decisions, spanning 37 years, help to put these responsibilities into perspective.
In Ultramares (1931), the court established the "primary benefit" pule as a defense for the auditor. It staled thai negligence on the part of the auditor would make him liable for damage caused to the client. However, third-party actions for negligence were all but barred in practice.
Quite different, however, is the due diligence legislation of BarChris (1968). Under BarChris, if the auditor fails to exercise due diligence in the performance of SEC work, he can be liable to anyone who suffers loss by relying on the applicable registration statement.
It might appear that the game is the same and only the names have changed —- from "negligence" to "due dili-gence." However, the game indeed has changed and the big difference is in the players; there are still only a few defendants — but a multitude of new plaintiffs.
Under the "negligence" concept, an auditor's liability
What is the auditor's responsibility in S.E.C. registrations?