Auditor's Liability and the Need for Increased Accounting Uniformity

Abstract

For the most part this paper argues that accountants should worry less about possible legal liabilities under a system of increased uniformity in financial reporting and more about the possibility that some financial statements prepared under accepted current practices are so deceptive as to give rise to a legal cause of action. In other words, I am suggesting that financial reports as currently prepared may be open to legal attack because the accounting principles and methods of presentation used in their preparation are too many, too muddled, and too malleable. The legal obstacles to broadening accountants' liability are more substantial than the foregoing conclusion indicates, but they are not such that courts strongly influenced by considerations of policy could not overcome them. This paper does not purport to investigate in detail the many doctrinal problems and problems of proof confronting plaintiffs in this area, but endeavors only to suggest the directions the law may take and to identify the propelling forces. There appears to me to be a substantial likelihood of a judicial response to increasingly felt necessities in the form of decisions imposing on accountants a greater duty to prevent deceptiveness in financial statements and to live up to the implications of their opinions. The impetus for such judicial action would, of course, proceed from the current situation with respect to generally accepted accounting principles, which is the subject of this symposium.