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Accountants not liable to shareholders says Florida Court.

A Florida court of appeals ruled that an accounting firm does not owe a duty to shareholders who invested in a company in alleged reliance on the firm's audited financial statements. This case began when the plaintiffs, Andrew Machata, John Nicolo and Paul J. Meyerhoff, invested in First American Bank and Trust, which had been audited by Seidman & Seidman. The bank had sent the firm's audit report and the bank's audited financial statements to shareholders and members of the public interested in investing in the bank.

The plaintiffs claimed they had invested in the bank in reliance on these financial statements, which they alleged contained false representations. The plaintiffs' investment subsequently was lost when the bank became insolvent. The trial court dismissed the plaintiffs' negligence claim, but they appealed. In reviewing the claim, the appellate court noted that Florida, in adopting the Restatement (Second) of Torts Section 552, extends liability to an accountant only when the accountant knows at the time the work is done that a limited group of third parties intends to rely on the work for a specific transaction. Without that knowledge and the use of that information for a specific transaction, of which the accountant is aware, Florida law does not permit liability against the accountant. The appellate court also dismissed the claim.

In this case, although the plaintiffs were corporate shareholders who relied on the audit report and audited financial statements, the trial court ruled they did not make up the kind of limited group meant by the Restatement. In addition, the CPA firm was not aware of any specific transaction at the time of the undertaking. Consequently, the accounting firm owed no duty to plaintiff shareholders. (Machata v. Seidman & Seidman, 644 So. 2d 114, Fla. App. 4 Dist., 1994)
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Article Details
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Author:Baliga, Wayne
Publication:Journal of Accountancy
Article Type:Brief Article
Date:Jul 1, 1995
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