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Client not "contributorily negligent" in relying on accountant's skill.

Gilbert Wegad, CPA, was sued by his client, Howard Street Jewelers, Inc., for failure to detect and disclose embezzlement by Howard's cashier. Howard's cash flow problems began in 1983. The cashier's embezzlement was not discovered until 1985.

Wegad argued that Howard's damages arose from its failure to act on information it had as early as 1983 that theft was possibly the source of its cash flow problem. The trial court, in instructing the jury, said if the jury found one or more of the plaintiffs guilty of negligence that directly caused Howard's loss, then the jury's verdict must be in favor of the defendant CPA. The jury ruled in favor of Wegad.

On appeal, the court ruled the trial court's instruction was in error. The appellate court held the jury should have been instructed that Howard justifiably could rely on the accountant's knowledge and skill and that such reliance is not "contributory negligence," especially since Howard had no reason to suspect the accountant's advice was wrong.

This type of instruction recognizes the disparity in knowledge between the accountant and client and the fact the client hires the accountant for that knowledge and is justified in relying on the accountant's skill. The jury's verdict was reversed.
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Title Annotation:Maryland
Publication:Journal of Accountancy
Date:Nov 1, 1991
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