Reviewed by Raymond T. Holmes, Jr. Virginia Commonwealth University

A collection of court cases citing the trials and transgressions of auditors might, at first brush, appear to be not the most stimulating reading in finance and accounting. However, this preconception is quickly overcome as the reader weighs the courtroom arguments and evaluates the parties involved in arriving at his own decision as to what constitutes a just conclusion to these cases.

This slender volume is filled with the essential elements of fifty-eight legal decisions affecting auditors and their work. The pertinent facts of the cases are written in a clear and concise manner with very little legal jargon.

The cases are presented in approximate chronological order, with an 1887 controversy being the earliest reported, and a 1940 appeal to the Supreme Court of Canada the latest. An unintended humorous sidelight may be drawn from Sir Hugh G. Cocke’s preface to the fourth, and last, edition of his work. In his introductory remarks Sir Hugh observed: “Since the last edition of the book was issued in 1932, there have not been many cases of special interest to auditors, but several have been added to this volume . . .” It is safe to venture that there are many practicing accountants in England and the United States who wish that statement could have been made at any time during the last ten years.

A tabulation of the points at issue in the cases reveals that nearly one-half involve claims that the auditors had been negligent in their duties. The question of how well the work had been performed almost invariably raises issues as to the understanding between the parties regarding the scope of work which was contracted for. The second most prevalent matter of dispute involved the erosion of capital brought about by alleged illegal payment of dividends out of capital. Other cases address the questions of the role of the auditor, the nature of his work and whether the auditor may take a lien on client records which the auditor has compiled and recorded. Less frequent are issues regarding special reserves, writing-up assets, contingency fees, and special fees for special services. Of course it is most often true that several issues may be raised in a single case, with one issue recognized as the dominant concern.

In addition to the advantage derived by any profession from re-viewing its history from several perspectives, the primary value of these cases is the insight they provide into the evolution of accounting standards and practices. Although the author presents the cases without any commentary, they point to a number of persistent problems which have faced the accounting profession. The decisions rendered, and attention given to avoiding these controversies in the future, have been a major influence in determining how the practice of accounting is presently conducted. The necessity for an engagement letter explicitly defining the contract between accountants and their clients is obvious from a review of the misunderstandings which have arisen over this point. The present day treatment of problems relative to independence of the accountant, full disclosure, contingency fees, and the requirement that dividends must be declared and are not automatic even though there appears to be sufficient income, all may be traced to decisions in these cases.

One remarkable feature of these cases is the respect and deference paid to accountants and the accounting profession. This attitude seems to prevail from the earliest cases, and accountants are continually referred to as men of outstanding integrity and ability.