Liability of Accountants for Negligent Auditing: Doctrine, Policy, and Ideology

Abstract

This article presents a comprehensive description of the law of auditor liability. It begins by summarizing the audit process and the history of auditor liability. The article then describes the state of the law in every jurisdiction. Auditor liability is a particularly interesting doctrinal problem because of the diversity of approaches to liability. The diversity of approaches among the jurisdictions inevitably seeks resolution, a resolution that would provide the correct or the better rule. This article provides neither of those. It does, however, frame the issue in several ways that makes the process of selecting an answer or rule more accessible. The article lays out the policy analysis of auditor liability. The analysis begins with consensus treatment of a paradigm case of liability, but then it splits into two approaches that reach different results in situations beyond the paradigm case. Finally, the article considers possible means of reconciling those positions and, in light of the difficulty of doing so, relates the auditor liability issue to broader questions in modern private law.