An Historical Perspective of CPA Liability

Adapting to Greater Expectations and Growing Exposures

Ron Klein, JD

Prior to the mid-1960s, litigation against accountants and other professionals was relatively rare. By 1970, however, expanded concepts of consumer rights brought an escalation in lawsuits against doctors, lawyers, national CPA firms, and other professional firms. This escalation, for all professions, was fueled by societal changes: A growing economy, technology, and the increased speed of everything, which caused legal changes that expanded liability to new constituencies. Meanwhile, many CPA firms expanded to serve the new economy, and firms' liability exposures expanded along with their menu of services. Clients and nonclient third parties became more willing to resolve disputes with CPA firms through litigation, especially when audit services failed to reveal misrepresented financial statements or insolvencies.