Accountants' Common Law Liability To Third Parties: Another Look
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Third-party litigation against public accountants has increased significantly during the past two decades. In response to this litigation explosion, the accounting profession has proposed reforms in the legislative and judicial aspects of the legal system. This paper presents an objective view of the litigation crisis facing the public accounting profession and some possible solutions. The research included personal interviews, in addition to a review of current articles and the transcript of the Bily v. Arthur Young & Co. court verdict. Text book research provided the base for all other information. The product liability theory, the expectation gap, accountants' common law liability to third parties, and theories regarding this liability are explained. Public accounting's Statement of Position and high risk audits are discussed. Potential solutions are then presented. Reform for both the accountants and the legal system are necessary to avert a crisis in the accounting profession and for the public.