Defamation and auditors

As mentioned previously, section 208 of the Companies provides auditors with qualified privilege with respect to defamation lawsuits relating to the audit report.

Defamation occurs where a oral or written statement lowers the reputation of a person. The defamation may occur expressly or impliedly. For example, a statement like "the financial manager embezzled the money" is expressly defamatory while the statement "the clerk was in charge of the missing funds" is impliedly defamatory.

At common law, an auditor also has qualified privilege. This privilege is important when fraud investigations are being carried out. Very often, preliminary statements and conclusons implicating certain person or persons will be made by the investigating auditors before all the evidence is available. Such statements could well turn out to be incorrect.

Qualified privilege will protect the auditors for honest mistakes. They must ensure that the statements are made to the correct persons - those who have an interest in receiving the information or have a duty to receive it, for example, statements about the fraud made to the directors of the victim company or to the authorities. However, statements made to the spouse of the suspected criminal will probably not be privileged.