Re london and general bank, Business Law and Ethics


          An auditor represented a confidential report to the directors calling their attention to the insufficiency of the securities in which the capital of the company was invested, and the difficulty of realizing them, but in his report to the shareholders merely stated that the value of the assets was dependent on realization, and in the result the shareholders were deceived as to the condition of the company, and a dividend was declared out of capital and not out of income.


          The auditors had been guilty of misfeasance under S.10 of the Companies like winding-up, Act, 1890 of, and was liable to make good the amount of dividend paid as amounting here to $14,433.3s.

                        LINDLEY, LJ.: "....... it is the duty of the directors, and not of the auditors, to recommend to the shareholders the amounts to be appropriated for dividends and it is the duty of the directors to have proper accounts kept, so as to show the true state and condition of the company........ it is for the shareholders, but only on the recommendation of the directors, to declare a dividend.  It is impossible to read the section of the Companies Act without being struck with the importance of the enactment that the auditors are to be appointed by the shareholders and not to or regards to the directors, are to report to them directly. Therefore the object of this enactment is obvious.  It evidently is to secure to the shareholders independent and reliable information respecting the true financial position of the company at the time of the audit.....  It is no part of an auditor's duty to give advice there, either to shareholders or to directors, so as to what they ought to do.  However an auditor has nothing to do with the prudence or imprudence of making loans including or without security.  It is nothing to him whereas the business of a company is being conducted prudently or imprudently or unprofitably or profitably.

Posted Date: 1/15/2013 2:36:39 AM | Location : United States

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