Ordinary Negligence

An accountant’s liability for ordinary negligence in the conduct of an audit of its client’s financial statements is confined to the client.  In Stephens Industries, Inc. v. Haskins & Sells, 438 F.2d 357 (10th Cir. Colo. 1971), the court held that an accountant is liable for damages to his or her client for fraud and negligence, but s/he ia liable to third parties, who the accountant knew or should have known were relying on audit, only for fraudulent conduct, and proof of mere negligence is not sufficient.  In Smiley v. S & J Inves., Inc., 260 Ga. App. 493 (Ga. Ct. App. 2003),  a Georgia court held that accountant is liable for negligent misrepresentation, when s/he provides false information obtained without exercising reasonable care or competence, and a third party relies upon such information, and such reliance is foreseeable.  Those parties who were timely identified as reliants on a certified public accountant’s statement of accounts are entitled to the same measure of damages that apply to those in privity of contract.[i]

[i] Ryan v. Kanne, 170 N.W.2d 395 (Iowa 1969)

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