Section 10 Duty

• Library: Prof Liability 2005

The first line of inquiry regarding duty is: To whom does the accountant owe a duty? There are three different standards to determine the recipients of the accountant’s duty.

The most conservative standard is the near-privity rule. Ultramares Corp. v. Touche, 174 N.E. 441 (N.Y. 1931). Generally, this rule bars any entity that is not a direct party to the contract (e.g., engagement letter) from bringing a lawsuit for negligence in the performance of the contract. This limits the potential claim to the accountant’s client or those with whom the client has an implied contractual relationship. The near-privity rule has been expanded over the past few years. Generally, in addition to direct parties, certain third parties may also pursue their legal remedies under this doctrine. Credit Alliance Corp. v. Arthur Andersen & Co., 483 N.E.2d 110 (N.Y. 1985). The plaintiff must generally prove that the accountant knew that the third party would rely on the accountant’s work product.

The most liberal approach, followed in a few...