Accountant's Legal Liability

The legal atmosphere surrounding the liability of accountants has caused a great deal of anxiety among practicing members of the accounting profession. Auditors have been under a great deal of attack in recent years, not only involving court cases, but also at the Securities and Exchange Commission (SEC) and in congressional proceedings and reports. Demands for increased regulations are heard quite frequently and the accounting profession is struggling to respond to these pressures. The purpose of this paper is to illustrate the evolution of the legal liability of accountants by examining landmark cases relating to the accountant's liability to third parties. Both common law cases and those cases involving the Federal Securities' Acts will be discussed. When dealing with the Federal Securities' Acts, attention will be focused on section 11 of the 1933 Act and section 10b of the 1934 Act. This is not a paper on how an accountant should avoid liability, but rather what has occurred and what the ramifications are to the accounting profession. By analyzing the nature of lawsuits and sources of potential liability, it is this writer's contention that the reader will have a good conception of how the legal atmosphere surrounding the liability of accountants has evolved and what the accountant's posture should be in this "Age of litigation."