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process that a system of law dominated by efficiency concerns would not consider worthwhile." Id. at 202. We would argue that a comparative contribution rule for apportioning damages in which the wrongful conduct of immune, insolvent, and settling parties is considered would not be unreasonably burdensome. Actually, Landes and Posner recognize the improvement that such a comparative fault approach would provide, finding that it is "relatively simple and protects the interests of all defendants, but it results in lower recoveries for plaintiffs, and it requires a judgment of relative fault." Id. at 203. Inasmuch as plaintiffs in auditor/third party cases can protect themselves ex ante by contract, see infra notes 356-74 and accompanying text, the only additional transaction cost involved in the ex post tort action would be the relatively modest cost of administering a special verdict.

(n284) ECONOMIC STRUCTURE, supra note 272, at 193. Landes and Posner are responding here to arguments raised by PROSSER AND KEETON, supra note 4, at 337-38. Landes and Posner claim that Prosser and Keeton have failed to keep "fully abreast of the economic analysis of their subject; our analysis of contribution, to which they make no reference...." ECONOMIC STRUCTURE, supra, at 172 n.5.

(n285) ECONOMIC STRUCTURE, supra note 272, at 13. Landes and Posner acknowledge that, if potential injurers and insurers have insufficient resources to be fully responsible financially, an externality is created. Id. To deal with this possibility they accept the less than optimal solution of "back-up liability." See supra notes 279-81 and accompanying test.

(n286) Joint and Multiple Tortieasors, supra note 276, at 521.

(n287) This assumption was explicitly relied on by the court in H. Rosenblum v. Adler, 461 A.2d 138, 152 (N.J. 1983) ("Much of the additional costs incurred either because of more thorough auditing review or increased insurance premiums would be borne by the business entity and its stockholders or its customers.").

(n288) Misstatements in financial statements occur because of client "errors" or "irregularities." An error is defined as an unintentional mistake in either interpreting

or applying generally accepted accounting principles (GAAP). See AICPA PROFESSIONAL STANDARDS, U.S. Auditing Standards AU Section 316.02 (Am. Inst. of Certified Pub. Accountants (CCH) 1990). An irregularity is an intentional misstatement of financial information perpetrated by either the client's management or employees. Id. at AU Section 316.03. See also Craig A. Brumfield et al., Business Risk and the Audit Process, J. ACCT., April 1983, at 60 [hereinafter Business Risk].

(n289) The auditing profession recognizes a broader concept known as "business risk," which includes -- with other threats to the accounting firm -- the probability of loss from judgments and settlements of litigation. Business Risk, supra note 288, at 60.

There are several principal grounds under which auditors are sued by their clients and relying third parties for negligently representing in unqualified audit reports that the audited entity's financial statements fairly represent the financial condition of the entity, when in feet they do


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