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permit such accommodation. Although there is nothing new about giving clients the benefit of the doubt in gray areas, the consequences of such decisions became far greater as the financial strength of American corporate giants became less secure in a world of intense global competition, corporate raiding, leveraged buyouts, rapidly changing technologies, and heavy dependence on foreign energy sources.(n59)

Beginning in the late 1970s, the need for more reliable financial information by the investment community became evident. In its Professional Standards, specifically the Code of Professional Ethics, the AICPA stated:

The Ethical Code of the American Institute [of Certified Public Accountants] emphasizes the profession's responsibility to the public, a responsibility that has grown as the number of investors has grown, as the relationship between corporate managers and stockholders has become more impersonal, and as government increasingly relies on accounting information.(n60)

In 1984, Chief Justice Burger likewise reminded the accounting profession of its public role.

By certifying the public reports that collectively depict a corporation's financial status, the independent auditor assumes a public responsibility transcending any employment relationship with the client. The independent public accountant performing this special function owes ultimate allegiance to the corporation's creditors and stockholders, as well as to the investing public .... To insulate from disclosure a certified public accountant's interpretations of the client's financial statements would be to ignore the significance of the accountant's role as a disinterested analyst charged with public obligations.(n61)

The California Court of Appeals, in International Mortgage Company v. John P. Butler Accountancy Corp.,(n62) relied on both of the foregoing "public-duty" quotations in holding that lack of privily would no longer insulate California accountants from common law negligence suits brought by foreseeable third party users of financial reports.(n63) The adoption of the Adler rule by an appellate court in America's largest jurisdiction seemed to announce that this last citadel of privily protecting auditors under negligence law was falling at last.

In addition to the heightened attention given to auditors' duties to third parties by the courts, there has also been increased interest in this problem expressed by the SEC, the Congress, and the internal regulatory mechanisms of the accounting profession itself. In its Accounting Series Release (ASR) no. 4 in 1938, the SEC established the presumption that financial statements that were prepared without substantial authoritative support would be deemed misleading.(n64) In 1973 the SEC indicated that practices promulgated by the profession's Financial Accounting Standards Board (FASB) would be deemed authoritative and standards followed that were contrary to FASB would not be.(n65) In the 1970s the SEC also disciplined a number of accounting firms having "broad public responsibilities, inferring that these firms had not adequately regarded their professional responsibility."(n66)

The Congress has twice in recent years held extensive hearings on the public responsibilities of the accounting profession and its ability to regulate itself. In the Ninety-fifth Congress, Congressman Moss and Senator Metcalf permitted critics of the profession to voice their


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