Foundation auditor liability: assessing errors in the audit report

The foundation auditor is, alongside the foundation board, a mandatory body of the private foundation. Under section 21 para. 1 of the Private Foundations Act, the auditor examines the annual accounts, including the accounting records, and the management report within three months after they are presented. The Act refers in substance to section 269 para. 1 of the Austrian Business Enterprise Code for the subject and scope of the audit and to section 272 for information rights.

The management report cannot be reduced to a list of figures. Section 18 of the Private Foundations Act also requires it to address fulfilment of the foundation purpose. Depending on the foundation’s assets, participations, real estate, loans, distributions, provisions or pending litigation may therefore be relevant to the audit.

The audit mandate is not a general form of business management supervision. The auditor does not decide whether an investment was commercially wise. The auditor must, however, perform the statutory examination conscientiously and impartially and deal appropriately with recognisable inconsistencies in the documents.

The article on appointment, independence and the audit report explains the basic procedure. Liability begins with the separate question of whether that statutory control function was performed properly.

A report may be open to criticism without creating a damages claim. A difference of opinion, a later reassessment and a breach of audit duty must be kept apart. The central question is whether the auditor should have addressed material information in light of the statutory mandate, the documents provided and the risks that were recognisable at the time.

A possible error may consist in failing to follow up a material accounting error despite sufficient indications. An inadequate examination of the management report, an unexplained treatment of distributions or a disregarded related entity may also matter. Not every omitted additional question is enough. The scope of the examination must be assessed against the law and the information that was actually available.

Section 21 para. 2 of the Private Foundations Act refers in substance to section 275 HGB. The currently applicable auditor-liability provision is found in section 275 UGB. It links liability to an intentional or negligent breach, a loss and causation. The applicable version and any liability limits must be checked separately rather than assumed from a general summary.

In 6 Ob 2/25z of 26 March 2025, the Austrian Supreme Court emphasised the foundation auditor’s independent control function. The decision concerned appointment rather than a final damages analysis. It nevertheless illustrates why the role cannot be reduced to a purely formal review.

The complete audit file is the starting point. This includes the annual accounts, accounting records, management report, supporting documents, contracts, valuations, resolutions and communication about questions raised by the auditor. Earlier audit reports may show that an issue had already been identified or repeatedly appeared.

The foundation should prepare a timeline. When was each document sent? When did the auditor request additional material? When did the board receive a draft? When was a finding addressed or left open? The three-month period under section 21 para. 1 starts when the accounts are presented. For liability, it is also crucial to identify when the relevant information was actually available.

Written indications of inconsistencies are particularly useful. Board minutes, an accountant’s email, a valuation report or a question from another body may show that a risk was recognisable. The later size of the loss cannot by itself replace evidence of what was knowable at the time.

The article on a special audit under section 31 PSG describes a different instrument. A special audit can investigate specific dishonesty or serious breaches of the law or foundation documents. It does not automatically replace a damages claim, but it may help clarify the facts.

Loss caused by a breach of the foundation auditor’s duties is generally loss suffered by the private foundation. The foundation must therefore be distinguished from the personal financial disadvantage of a beneficiary or founder.

The foundation board must decide whether the claim should be secured, pursued out of court or brought before a court. If a board member has a conflict, representation, decision-making and other organisational rights become important. A person affected by the matter should not act for the foundation while ignoring that conflict.

Under section 30 PSG, beneficiaries have rights to information about fulfilment of the foundation purpose and to inspect the annual accounts, management report, audit report, books, foundation deed and supplementary foundation deed. This is a separate information route. It does not automatically make the beneficiary the holder of the foundation’s damages claim against the auditor.

The overview of beneficiary information rights explains how to request documents and prepare court protection if the foundation does not respond. A claim against the auditor additionally requires clarity about the competent foundation body and the evidence that must be secured.

The annual report under section 21 PSG documents the statutory audit. It is submitted to the other bodies of the private foundation. A negative or qualified opinion may point to problems, but it does not answer every question about loss and the auditor’s personal responsibility.

A special audit under section 31 PSG addresses specific alleged dishonesty or serious breaches of the law or foundation documents. It has its own statutory requirements and application process. The annual audit report and the special audit therefore pursue different objectives.

Even a properly conducted special audit does not remove the board’s responsibility to decide on preservation and enforcement. Possible limitation issues, evidence, contributory causes and whether a settlement better serves the foundation must be assessed together. Specific deadlines should be checked against the claim and facts rather than copied from general examples.