The Last Step in the Expansion of Accountant Liability
![handle is hein.journals/molr52 and id is 747 raw text is: THE LAST STEP IN THE
EXPANSION OF ACCOUNTANT
LIABILITY
International Mortgage Company v. John P. Butler Accountancy Corp.,
The accountant's duty of care for negligent misrepresentation2 has been
at issue in an increasing number of lawsuits throughout the nation.3 For
decades most courts have held that an accountant's duty ran only to his
client.4 However, due to the combined effects of creative litigators, the per-
ceived deep pockets of the accounting profession, the expanded theories of
tort liability, and the increasing complexity of the financial world, a few
courts have rethought their treatment of this issue.5 One such court was the
1. 177 Cal. App. 3d 806, 223 Cal. Rptr. 218, review denied, 178 Cal. App.
3d 682h (1986).
2. This Note deals exclusively with the situation in which the accountant,
acting in his role as a certified public accountant (CPA), performs his audit duties
and in conjunction with carrying out these duties issues an unqualified opinion on
the financial statement he has audited. In general, a CPA is an independent accoun-
tant, not an employee of the company he is performing the audit for, who has taken
and passed national standardized examinations. For a listing of the standards an
auditor must follow while performing an audit, see infra note 32.
3. More lawsuits have been filed against accountants in the last decade and
a half than in the entire previous history of the [accounting] profession. Minow,
Accountant's Liability and the Litigation Explosion, J. Acct., Sept. 1984, at 70, 76.
As one scholar has noted:
There has been a significant rise in the number of law suits brought against
accountants in the past decade [1966-1976]. In 1966 it was reported that
approximately 100 suits were in various stages of litigation. Wall St. J.,
Nov. 15, 1966, at 12, col. 6, at 13, col. 2. By 1973, more than 500 companies
ha[d] litigation or claims in process involving auditors. Hawes, Truth in
Financial Statements: An Introduction, 28 VAND. L. REv. 1, 1 n.1 (1975).
Besser, Privity? An Obsolete Approach to the Liability of Accountants to Third
Parties, 7 SETON HALL 507, 507 n.2 (1976).
4. H. Rosenblum Inc. v. Adler, 93 N.J. 324, -, 461 A.2d 138, 142 (1983).
5. Wiener, Common Law Liability of the Certified Public Accountant for
Negligent Misrepresentation, 20 SAN Dmr-o L. Rnv. 233-34 (1983). Wiener predicts:
Regardless of the cause [of the increased litigation in the area of accountants'
liability,] . . . it is only to have been expected that when the accountant
became high priest willing for a fee to translate, through the added mystique
of computer software, the jargon of almost incomprehensible financial trans-
actions into neat, tabulated and word-processed form he became targeted
as the prime defendant when the [company] ... he audited became bankrupt.
Id. at 234-35.](ViewImageLocal?handle=hein.journals/molr52&div=39&collection=&method=preview&ext=.png&size=3)
What Is HeinOnline?
Contact us for annual subscription options:
Already a HeinOnline Subscriber?
profiles profiles most
The Last Step in the Expansion of Accountant Liability
Contact us for annual subscription options:
Already a HeinOnline Subscriber?
profiles profiles most