The most restrictive view under common law is that auditors have no liability to third parties who do not have a privity relationship with the auditor. Briefly define privity and the effect it has on the auditor, client, investors, and creditors under common law.
What will be an ideal response?
Privity means that a contract or specific agreement exists between two parties. The contract between the auditor and the client allows for privity because it is a direct contract. However,
investors and creditors cannot successfully sue auditors, even if they are negligent, because
they were not directly involved in the contract and do not, therefore, have privity.
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