Academic journal article Journal of Accountancy

Court Limits Accountant's Duty to Third-Party Lender

Academic journal article Journal of Accountancy

Court Limits Accountant's Duty to Third-Party Lender

Article excerpt

The Missouri Court of Appeals ruled there must be evidence an accountant knew that financial statements he was to prepare for a client were to be given to a particular lender in order for the lender to sustain a negligence action against the accountant.

MidAmerican Bank and Trust Co. filed suit against Charles R. Harrison, CPA, after it allegedly had relied on financial statements prepared by Harrison in extending credit to Harrison's client, Associated Photographers. In 1985 Associated had requested a loan from MidAmerican and had given the lender financial statements prepared by Harrison to support its loan application. After MidAmerican received an independent appraisal supporting the market value of Associated's assets, it granted Associated loans of $1.6 million. Harrison did not perform the appraisal nor was he aware that Associated presented the financial statements to MidAmerican.

Shortly after approving the loan, Associated reported a large loss. MidAmerican retained another accounting firm to review Associated's accounting records. …

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