An investor bought shares in a company relying on audited accounts that negligently overstated profits, and suffered a loss. Applying Caparo Industries v Dickman, to whom do the auditors normally owe a duty of care in respect of their statutory audit report?

Correct answer: D) To the company, and to the shareholders only as a body for the purpose of exercising their governance rights

Explanation

In Caparo the House of Lords held that the statutory audit is for the shareholders as a body to exercise informed control of the company, not to guide individual investment decisions. Auditors therefore owe no duty to individual shareholders or potential investors buying shares, unless additional facts show a special relationship, such as where the auditor knew the accounts would be relied on by a specific party for a specific transaction (as considered in ADT v BDO Binder Hamlyn). Mere foreseeability of reliance is insufficient.