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accountants are potentially liable to any third party who reasonably might be expected to rely on the audited financial statements.(n22) This latest development has dramatically increased the exposure of auditors to liability for negligent misrepresentation.(n23) Presumably, the auditor could be responsible for compensatory damages equal to the total losses suffered by creditors, or even guarantors of the creditors, when debtors become insolvent and are unable to meet contractual obligations. In addition, such liability could extend to capital losses incurred by equity investors who have detrimentally relied on the accuracy of audited financial statements when assessing the risk of investment.(n24) And because auditors' liability to third parties sounds in tort, punitive damages are also a distinct possibility.(n25)

Until the first of these foreseeable plaintiff cases, H. Rosenblum v. Adler,(n26) accounting firms could assume that negligent conduct carried with it limited consequences. By greatly expanding the class of potential plaintiffs, Adler ushered in a new, far more dangerous environment for those in the business of assessing financial information.

In this article, the authors explore the implications to the accounting profession and the business world of moving from a sheltered, insulated position under Ultramares to a highly exposed one introduced by Adler. It is possible that the foreseeability rule for auditors' liability will become increasingly pervasive, inasmuch as the savings and loan debacle will make it increasingly clear to the public, and hence to the courts, that the failure to provide accurate financial information can have catastrophic effect on the national economy.(n27)

Even under the Restatement formulation, one can anticipate that third party creditors, investors, and guarantors will increasingly insist that companies seeking funds must advise their auditors that the audit opinions are being used as evidence of their client's financial health, which would trigger exposure of the auditors to third party liability. We are concerned, however, that imposing unlimited liability on certified public accounting firms will consistently place huge, unfair, and economically inefficient burdens on relatively minor participants in negligently -- or even fraudulently -- operated enterprises.(n28) In the absence of a privily rule some other limiting principle would appear appropriate because accountants are not well positioned to serve as guarantors of the soundness of the business enterprises they audit.(n29) This article is a search for such a viable, limiting principle.

We begin with a short history of the American accounting profession in order to explain how the structural situation arose in which accountants compete for auditing fees and other revenues from parties whose operations the accountants must then examine with detachment, objectivity, and independence. In Part II we compare the American system with schemes used in other countries.

In the next part, we consider apportionment of damages as a limiting principle for auditors' negligence liability. Because the typical scenarios in which the auditor is joined as a defendant -- or is sued separately -- often involve an insolvent client, we discuss the effect of joint and several liability rules, with or without contribution, on comparative fault awards. We conclude that a regime of reasonable foreseeability under comparative fault and comparative contribution principles-a regime that permits comparison of all kinds and degrees of fault, that includes negligent misrepresentation claims, and is subject to a proportional several only rule -- is the


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