When Will Claims be Recognized? Defending Claims Against Auditors by Non-Clients
For the Defense
Auditors are increasingly targeted as an attractive "deep pocket" to pay for harm caused by their clients; actual or perceived misdeeds. In the wake of corporate scandals such as Enron and WorldCom, the accounting profession has met harsh criticism. This increased negative public perception can be expected to result in increased claims against accounting firms, including law suits by non-clients who claim that the audit led to their losses. See W. Joseph Nielsen, Defending Accounting Malpractice Actions in Connecticut: An Increasingly Difficult Task, Connecticut Bar Journal (September 2004).
This shift in the public perception creates a possibility of relaxation of limitations that have traditionally protected auditors. Traditionally, auditors have not faced liability except to those parties with whom they had contracted. However, audited financial statements are used not only by the client, but also by the public at large. Investors, creditors, customers and suppliers utilize audited financial statements in various ways. Absent limitations on the scope of the auditor's duty, the array of potential plaintiffs claiming loss caused by a negligent audit is broad and the poten tial liability is catastrophic. See Hannesson I. Murphy, Accountant Liability for Negligence in the Absence of Privity, Trial Advo cate Quarterly (Fall 2005).
The complete article, "When Will Claims be Recognized? Defending Claims Against Auditors by Non-Clients," first appeared in For the Defense in August 2007.
