reover, auditors' reports failed to disclose the true position of the company, although it appears that the auditors had knowledge of defects in the company's internal accounting system.
This situation is a small-scale replica of the Enron scandal in the United States, which came to light after the downturn in the American stock market in 2001-2002. Enron claimed to have been making enormous profits, when in fact those profits existed mainly on paper and the company was losing vast sums. Enron's auditor, Arthur Andersen, helped substantiate dubious (and often patently false) profit claims by "auditing" Enron and thereby providing evidence of the company's allegedly sound position. In both cases it appears that company directors put pressure on their auditors to substantiate false profit claims and hide losses, and the issue of the liability of those directors to shareholders and other interested parties came into play when the directors denied all knowledge.
The main question in assessing how company law in this area differs across the three jurisdictions is this: Can company directors be held liable under common law for breaches of a duty of care to the company and shareholders? Traditionally, directors were insulated from civil liability by their position as directors of limited liability corporations (Arsalidou, 153). They could simply claim ignorance of developments taking place within the company in case anyone raised questions about their stewardship. The law therefore did not impose a duty of care on them, and claims of malfeasance were made in equity on the basis of the director's position as trustee of the company.
However, the duties of a director may differ greatly from those of a trustee in that trustees are charged with sober and responsible management of the trust, whereas directors are often expected to take risks and display entrepreneurial flair in order to achieve profits (Arsalidou, 125). That distinctio...