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Accountant Liability

In: Business and Management

Submitted By dnccarib
Words 252
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Upon examination of Ultramares, certain criteria may be gleaned. Before accountants may be held liable in negligence to noncontractual parties who rely to their detriment on inaccurate financial reports, certain prerequisites must be satisfied: (1) the accountants must have been aware that the financial reports were to be used for a particular purpose or purposes, (2) in the furtherance of which a known party or parties was intended to rely, and (3) there must have been some conduct on the part of the accountants linking them to that party or parties, which evinces the accountants’ understanding of that party or parties’ reliance. While these criteria permit some flexibility in the application of the doctrine of privity to accountants’ liability, they do not represent a departure from the principles articulated in Ultramares, but, rather, they are intended to preserve the wisdom and policy set forth therein.
In the appeal we decide today, application of the foregoing principles presents little difficulty. The facts as alleged by plaintiffs fail to demonstrate the existence of a relationship between the parties sufficiently approaching privity. While the allegations in the complaint state that Smith sought to induce plaintiffs to extend credit, no claim is made that Andersen was being employed to prepare the reports with that particular purpose in mind. Moreover, there is no allegation that Andersen had any direct dealings with plaintiffs, had specifically agreed with Smith to prepare the report for plaintiffs’ use or according to plaintiffs’ requirements, or had specifically agreed with Smith to provide

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