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Even though abuses might flow from the present state of affairs, the accounting profession probably has the clout, the resources and the inclination to preserve the status quo.

CONCLUSIONS AND RECOMMENDATIONS

We find it difficult to justify a privity requirement for maintaining negligence actions against auditors when privity is no longer required in actions against other negligent tortfeasors. Although at one time the relaxation of privity was justified to let only physically injured individuals reach the principal tortfeasor, the controlling foreseeability principle has proven sound and worthy of universal applicability in negligence cases.

On the other hand, the common law rule of joint and several liability cannot be justified on fairness or economic efficiency grounds in a number of areas, especially if the victim of negligent conduct has suffered only pecuniary loss and can negotiate the risk of insolvency ex ante. In third party claims against negligent auditors, the reasonably foreseeable plaintiff should have standing to sue, but the culpability of the auditor should be assessed by the fact finder and only that equitably apportioned share should be imposed on the auditor, whether or not potential joint defendants are insolvent or immune from suit.

Given the right of reasonably foreseeable or foreseen non-client plaintiffs to sue auditors for negligence, we support, in theory, the idea of statutory caps linked with fee size. We also approve of various structural reforms that aim to remove conflict-of-interest problems from the client-auditor relationship. We are doubtful, however, that either of these proposals will soon be considered seriously, let alone adopted in this country.

We do not support the full-reliance-on-contract approach, believing that unnegotiated disclaimers of liability and limitations of remedy that have no legislative base of support (such as the Uniform Commercial Code) are unlikely to be enforced by many courts on public policy grounds and will add a note of increased variability in an area that requires more standardization than now exists. We also think that a return to a privity regime, depending on negotiated indemnity contracts and brand name protection to inhibit negligent auditing, will provide inadequate deterrence in the current cutthroat competition for auditing engagagements. Our position is predicated on the assumption that courts, legislatures, and financial markets will ultimately agree with this assessment, but in this regard our crystal ball could easily turn out to be clouded.

Finally, we do not support the idea of limited liability incorporation for accountants. Historically, the corporate form with liability limitation prevailed because it proved to be a device that could increase organizational size in order to facilitate the undertaking of great projects. A lack of these imperatives would appear to make the grant of limited personal liability unnecessary and inappropriate for the professions.

To sum up, the authors recommend apportionment of damages as the main principle limiting the liability of negligent auditors to foreseeable third parties. We also urge that the rule of joint and several liability be abrogated, at least in cases in which the trier of fact assigns the auditor a

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