I AM
AN AUDITOR

I AM
AN AUDITOR

THE LIABILITY OF THE AUDITOR IS LIKELY TO BE ENGAGED UNDER FOUR DIFFERENT ASPECTS:

Civil liability

Criminal liability

Disciplinary liability

Administrative liability

The Statutory Auditor (CAC) is a legal and external auditor of the company.

He verifies the sincerity and the conformity of the company’s accounts with the standards in force. The mission of the auditor is of general interest since he certifies the financial data of the company to the tax authorities and the State.

The auditor is liable, both to the company and to third parties, for any misconduct or negligence committed in the performance of his duties and specific criminal offences are provided for by law. The statutory auditor may be held liable if he or she fails to disclose criminal acts.

STATUTE OF LIMITATIONS
 FOR OF CIVIL LIABILITY

  • The professional civil liability of the chartered accountant is subject to the five-year statute of limitations of common law.
  • The civil liability action against the chartered accountant, whatever its basis, is thus prescribed by 5 years as from the day when the co-contractor or the third party had knowledge or should have known the damaging fact (embezzlement or fraud, anomalies in the annual accounts, an error in the applied tax system, in the social or tax declarations etc...).

THE CIVIL LIABILITY OF THE CAC

  • The statutory auditor is liable, with respect to the person (or entity) and third parties, for the damaging consequences of the faults and negligence he may commit in the performance of his duties (insufficient investigation, certification of an inaccurate balance sheet, etc.)
In accordance with the common law of civil liability, for the auditor's civil liability to be incurred, three conditions must be met:
  • 1. The existence of a fault attributable to the auditor
  • 2. The existence of a prejudice suffered by the person who claims to be a victim
  • 3. The existence of a causal link between the fault attributable to the statutory auditor and the prejudice allegedly suffered by the victim, provided that the statutory auditor cannot exonerate himself from his responsibility
The auditor is of course liable for the faults of the persons assisting him/her.

ON THE BURDEN OF PROOF OF A FAULT BORNE BY THE PLAINTIFF TO THE ACTION

  • The Court of Appeal of Caen (CA Caen, bulletin CNC n°1202000 page 552) recalls that "as regards tort liability, it is up to the person seeking the liability of an auditor to prove the fault of the auditors, the prejudice and the causal link between this fault and this prejudice.

ON THE NEED TO PROVE FAULT OR NEGLIGENCE ON THE PART OF THE STATUTORY AUDITOR

  • Statutory auditors are liable for the harmful consequences (fault or negligence) committed in the exercise of their duties.
  • However, they cannot be held liable for information or disclosure of facts made in the performance of their duties.
  • They are not civilly liable for offences committed by the directors and officers unless they have knowledge of them and have not reported them in their report to the general meeting or to the competent body (mentioned in article L.823-1 of the Commercial Code).
  • The statutory auditor cannot be held liable for all irregularities committed in a company.
  • The statutory auditor is only responsible for failures to comply with his auditing obligation.

THE STATUTORY AUDITOR
IS BOUND BY A SIMPLE OBLIGATION OF MEANS

  • In the performance of his mission, the auditor is only bound by an obligation of means. The auditor's fault must therefore be established by the person who wishes to engage his liability.
  • Case law has consistently ruled on the meaning of an obligation of means on the part of the statutory auditor and on the need for the existence of a proven fault in order to engage his liability.
  • The auditor's fault must result from the disregard of the diligence normally incumbent on such a professional, on the absence of investigation necessary to his mission.
  • The auditor is liable for simple obligations of means. here is a fault when the auditor has not behaved as a good father in accordance with the prescriptions of article 1137 of the Civil Code. The obligation of means corresponds to normal diligence.
ON THE NEED TO DEMONSTRATE A BREACH OF THE DUTY OF CARE REQUIRED OF A PRUDENT PROFESSIONAL
  • The plaintiff in the action must also prove that the auditor's normal diligence would have prevented damage.
  • The auditor must be shown to have failed to exercise the care required of a prudent, careful and informed professional.
IN GENERAL, THE RESPONSIBILITY OF THE AUDITOR WILL BE RETAINED WHEN: :
  • He has not carried out sufficient controls and verifications
  • He has committed a fault in the context of the certification of the accounts
  • He has failed in its obligation to provide correct information on observations and comments on the company's accounts
  • He will have failed in his obligation to report inaccuracies and irregularities affecting the company's accounts and, in general, all infringements of which he is aware
  • He will have failed in his obligation to present a special report on the regulated agreements of which he has knowledge
  • He/she has failed in his/her obligation to sound the alarm
  • He/she has failed in his/her obligation to convene a shareholders' meeting in the event of a failure by the management bodies
Exceptionally, the CAC may be liable for results (Civ. 1re, Feb 16, 1988, Bull. civ. I, no 42, RTD civ. 1988. 767, obs. P. Jourdain), and in the following circumstances:
  • Verification of the rules relating to the shares that must be owned by the directors and members of the supervisory board
  • Verification of the regularity of the modifications of the articles of association in commercial companies
  • The exact certification of the total amount of the remuneration paid to the best paid persons (CA Bordeaux, March 7, 1990, Dr sociétés 1991, n 225, RJ com. 1991, n 1317, p. 215 and s., note C. Goyet)
  • The preparation of a report on regulated agreements entered into by the directors with the company
  • The convening of the management bodies and of the meeting when the directors are in default or in the context of its warning mission
  • Informing the management bodies and the meeting of shareholders of their general work program and the various surveys they have conducted
  • Informing the management bodies and the assembly in case of irregularities or inaccuracies (CA Orléans, 18 Dec. 1990, Rev. jur. Centre Ouest 1992. 182, note G.-J. Nana)
  • Information of the management bodies and the meeting in case of discovery of criminal acts (CA Dijon, Nov. 27, 1985, Bull. CNCC n 62, 1985)
  • Information of the management bodies and the general meeting in the event of changes in the presentation of the accounts or the valuation methods

PRESCRIPTION IN MATTERS OF
CIVIL LIABILITY

  • The statute of limitations for civil actions against statutory auditors is three years from the date of the harmful event or its disclosure.
  • However, in certain circumstances, a five-year statute of limitations, when the fault is detachable from the functions, or even a ten-year statute of limitations may be applied against the CAC.
  • Finally, it should be noted that the principle according to which criminal law has res judicata effect on civil law is absolute, which means that when a criminal court has ruled on the existence of a fact serving as a common basis for the criminal action and the civil action against the CAC, its decision is binding for the ruling on the civil action.

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