Scott Group Ltd v McFarlane is a New Zealand case where it was held that an auditor was liable for damages for negligence to a 3rd party which later relied on the audit report.

[1] G M McFarlane, a chartered accountant, audited the 1970 John Duthie Holdings Ltd financial statements, and through a simple mathematical error, resulted in John Duthie Holdings net worth being overstated by $38,000.

At the same time, Scott Group Limited were considering making a takeover offer, and after reading the audited reports in question, valued the company at over $1 million, and offered to take over the company on the basis of two shares for every one share.

As a result, Scott Group argued that it paid $38,000 too much for the shares, and sought compensation from the auditors for this amount.

The Court of Appeal ruled that as J D Holdings financial position was so poor, it made a takeover by another company a strong possibility, and that as a result, the auditors owed Scott Group a duty of care.