Academic journal article Journal of Accountancy

Accountants Liability for Purely Economic Loss

Academic journal article Journal of Accountancy

Accountants Liability for Purely Economic Loss

Article excerpt

An Illinois appellate court ruled an accounting firm may be liable to a client for negligence causing only economic loss.

The Congregation of the Passion, Holy Cross Province--a Roman Catholic community--retained Touche Ross & Co. to perform a review of its financial statements and test the market value of its investments. Holy Cross's investment adviser had entered into a number of arbitrage transactions that necessitated this testing. Touche allegedly advised Holy Cross to report open arbitrage positions on a net cash paid basis (the difference between cost and selling price of the securities).

After Touche's review, it was discovered the market value of the arbitrage accounts was $2.4 million less than the investment adviser reported to Holy Cross. Holy Cross sued Touche and alleged various acts of negligence, including

* Touche's advice to report the transactions on a net cash paid basis.

* Touche's failure to confirm or test the market value of the securities.

* Touche's allowing Holy Cross's annual report to state the investments on a basis other than market value. …

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