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Our research has disclosed no case in the more than 50 years since enactment of the first securities laws where a creditor was permitted to recover against an accountant based upon a review report contained in a public offering prospectus. Federal courts have routinely held that review reports included in a prospectus cannot form the basis of claims by investors even under common law fraud or common law accountant negligence theories.

Id. at 497 (emphasis in the original). The dissent argued that RESTATEMENT (SECOND)

OF TORTS Section 552 would impose liability for negligent representation on an accountant who has foreseen a relying third party, even in the case of an unaudited review report. Id. at 502- 04 (Johnson, J., dissenting).

Special-Purpose Reports: CPAs also perform other attest engagements. CPAs have been requested by various parties to provide special reports such as Reports on Specified Elements, Accounts or Items, or Reports on Compliance with Aspects of Contractual Agreements. These engagements have limited reporting objectives; however, the CPA is still attesting to the fairness of some aspect of the financial statements or the related accounts. There is a specific SAS entitled "Special Reports" which outlines guidelines for these engagements. See 1 AICPA PROFESSIONAL STANDARDS. U.S. Auditing Standards, AU Section 623, at 1077-98 (Am. Inst. of Certified Pub. Accountants (CCH) 1990).

Prospective Financial Statements: The final attest service relates to prospective financial statements such as financial forecasts and projections. Forecasts predict an entity's future expected financial statements to the best of the client's management's knowledge. Projections are distinguished from financial forecasts in that they represent the future expected financial statements of the client company given one or more hypothetical assumptions.

Certain attestation standards have been drafted in order to provide guidance in this area. The CPA has some exposure when an examination report is issued in conjunction with a financial forecast or projection. In the examination report, the CPA offers some assurance to the readers that the prospective financial statements are prepared in conformity with AICPA presentation guidelines and that the underlying assumptions provide a reasonable basis for the prospective financial position included in the financial forecast or projection. See 1 AICPA PROFESSIONAL STANDARDS, Attestation Standards, AT Section 200.28, at 2548 (Am. Inst. of Certified Pub. Accountants (CCH) 1990).

(n58) See supra note 57 discussing the sources of authority for American accounting principles and auditing standards, FASB and the AICPA.

(n59) Even if an auditor permits its client to include material misstatements in unqualified audited financial statements, losses to creditors, guarantors, and investors do not necessarily follow. Despite its publishing errors and irregularities in its statements, the company may continue to to meet its financial obligations, and investors may be able to sell their shares with gains. In recent years, however, the margin for error seems to be less. Conditions of high debt, fierce global competition, and volatile commodities markets seem to be leading large corporations to insolvency more often than once was the case.


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