Why have courts restricted the liability of auditors to third parties?

Courts have restricted the liability of auditors to third parties primarily to protect a profession that serves the public interest. The reasoning behind this approach is rooted in the recognition that auditors play a crucial role in enhancing the reliability of financial statements, which are essential for informed decision-making by various stakeholders, including investors and creditors.

By limiting liability, courts foster an environment where auditors can perform their duties without the constant fear of being sued for every perceived oversight or error, provided they adhere to established professional standards. This limitation encourages auditors to maintain their independence and objectivity, ensuring that they focus on their essential function without undue pressure.

If auditors were held liable to a broad range of third parties for their work, it could lead to defensive practices, where auditors might become overly conservative or hesitant to express opinions for fear of litigation. This could undermine their value in providing honest assessments of financial documentation. Other options do not encapsulate the balance that courts strive to maintain between accountability, the profession's function, and the safeguarding of the public interest.