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arguing, in effect, that trickle-down economics would eventually maximize wealth for all. Under such a regime, "[t]he social role of accountants came to be seen as minimization of taxes."(n45)

After the stock market crash in 1929, when disillusionment with the stewardship of the economy by the business class became widespread, the accounting profession still did not question the business advocate role it had earlier adopted. "With tax work and management services being the main avenues of survival for many accountants, the audit function became [even] less important. Many new practitioners remained oblivious to, if not totally unaware of, any obligation to third parties."(n46)

Judicial development of theories of legal liability for accountants tended to reinforce the complacency of the profession. Although a 1905 court decision held that accountants must exercise reasonable care,(n47) this negligence standard was applied leniently. "`Accountants could assume the honesty of management and could rely on their representations.'"(n48) In Craig v. Anyon,(n49) the court recognized the defense of contributory negligence that could be raised by a negligent auditor whenever the client conducted its business in a negligent manner.(n50) Finally, in 1931, Ultramares v. Touche(n51) was decided. The court, while holding that accountants could be held liable to third parties for gross negligence amounting to fraud,(n52) also held that unidentified, yet foreseeable third party victims should not be permitted to maintain actions against auditors for ordinary negligence.(n53)

There appears to have been little early recognition that the profession's independence might be compromised by the direct accountant-client relationship. Until the 1929 crash, investors and creditors appeared reasonably satisfied with the corporate disclosures of financial information certified by CPA firms.(n54) The institutional framework had become so established that, even after the crash, reformers ignored the structure of the accountant-client relationship, focusing instead on direct government regulation to set stringent requirements that independent audits provide complete disclosure to the public by large corporations.(n55) The 1933 and 1934 federal securities acts spelled out the necessary information, and the New York Stock Exchange came around to supporting the necessity for independent audits of listed companies by CPA firms.(n56)

In the half century following the crash, the role of public accountant as private entrepreneur appeared to have been accepted without serious challenge. Although isolated major bankruptcies surprised investors and creditors from time to time, the financial community felt generally secure with the federal regulatory system (for public stock issues) and its disclosure requirements. Also, huge investment funds were acquiring ever greater percentages of American corporate equity; presumably, the sophisticated, professional managers of those funds could be relied on to serve as independent watchdogs with respect to the accuracy of the financial information released by major corporations. At the same time, accounting firms were becoming larger, more professional, and presumably more protective of their reputations, thus creating an incentive for them to produce high-quality audits.(n57)

But with the growth of the profession came increased competition. The need to retain and attract major clients created pressures for the auditor to view its client's accounting treatments through the eyes of the client whenever Generally Accepted Accounting Principles (GAAP)(n58) would


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