AICPA not negligent in promulgating professional standards.

The Supreme Court of Connecticut ruled that the American Institute of CPAs did not owe a duty of care to investors who relied on financial reports prepared in accordance with standards that have been promulgated by the AICPA.

The plaintiff, Barbara Waters, purchased a partnership interest in Colonial Potomac Limited Partnership in November 1986. Colonial's marketing documents included financial reports that were prepared by Kostin and Co., an accounting firm that is a member of the AICPA division for CPA firms. The reports included a financial forecast containing a statement that the accounting firm had followed the AICPA standards in preparing the forecast. The plaintiff, who allegedly had relied on this report in investing in Colonial Potomac, subsequently lost the money that she had invested.

The plaintiff alleged that either the firm had failed to follow AICPA standards in preparing this report or, if it had, the standards themselves had been negligently promulgated. The plaintiff alleged that the negligent promulgation of standards had caused her to suffer both economic loss and emotional distress.

The trial court granted the Institute's motion to dismiss on the grounds that the AICPA owed no duty of care to the plaintiff, and the plaintiff failed to allege the elements necessary to establish a claim against the AICPA for negligent infliction of emotional distress. The plaintiff appealed this dismissal.

In supporting the trial court's ruling, the state supreme court observed that "the law does not recognize a duty in the air." It said the conclusion that a particular injury to a particular plaintiff possibly is foreseeable does not in itself create a duty of care. Every injury has ramifying consequences; however, the law must limit the legal consequences of wrongs to a control-lable degree.

In this case, the plaintiff alleged no privity of contract or statutory duty on which to premise a duty of care.

Although the AICPA's professional literature recognizes a responsibility on the part of the accounting profession to its clients and the public, the court found that this acknowledgment was not equivalent to an assumption by the AICPA of any particular duty of care to persons such as the plaintiff. The only connection between the plaintiff and the Institute was that the plaintiff allegedly had relied on financial reports prepared by the firm in conformity with AICPA standards.

These allegations failed to provide a nexus between the AICPA's promulgation of professional accounting standards, on the one hand, and the plaintiff and the disappointment of her commercial expectations, on the other hand, that was sufficient to impose a duty of care on the AICPA. Waters v. Autuori, 676 A.2d 357 (Conn. 1996)