Chaffee, Nancy
March 1988
Journal of Corporation Law;Spring88, Vol. 14 Issue 3, p863
Academic Journal
This Note discusses the role of an accountant in today's society, First, the functions of the accounting professions and the development of the law of accountant liability are discussed briefly, Second, the arguments for and against extending liability beyond privity are examined, with the goal of establishing a workable standard for the accounting profession, Third, the varying levels of foreseeability are considered and two possible solutions to the foreseeability problem are presented. Fourth, the scope of the independent auditor's responsibility to detect fraudulent practices of management and its employees is discussed. Because this issue has received a great deal of attention, both legislatively and judicially, the Note addresses the concerns of the public and the profession and evaluates the steps recently taken by the profession to establish the accountant's role in detecting fraud. Last, the Note presents a number of related concerns that plague the accounting profession and analyzes several precautions that can be taken to prevent a lawsuit. This Note reaches several conclusions. First, as long as states apply differing standards of liability to accountants, there will be confusion and uncertainty, more specifically, for example, when two very influential jurisdictions such as California and New York apply markedly different standards. Second, although this Note does not advocate that accountants should be responsible for detecting management fraud, the accounting profession actually has been forced to accept this responsibility, at least within limits. Last, despite the fact that the accounting profession is facing difficult times, it is equipped to meet these challenges. By requiring its members to distribute more meaningful information to clients and by adopting more definite standards, the profession can begin developing solutions to the problems.


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