Academic journal article Journal of Accountancy

Statute of Limitations Bars Third-Party Investors' Claims

Academic journal article Journal of Accountancy

Statute of Limitations Bars Third-Party Investors' Claims

Article excerpt

A Texas Court of Appeals ruled the discovery rule did not suspend the statute of limitations period when a nonclient filed a negligence suit against a CPA firm.

KPMG Peat Marwick performed a 1981 audit of Estoril Producing Corp., the managing partner of an oil and gas limited partnership with 43 investors formed in 1980. Through a series of complex transactions, Estoril sold itself the partnership's gas and then resold the gas at a higher price to Oklahoma Natural Gas Co.

Additionally, Estoril entered into an agreement with Heritage Processing, Inc. in which Estoril acquired 10% of Heritage in return for processing the partnership's gas at Heritage's plant. Under the terms of the limited partnership agreement, Estoril was required to engage independent auditors to render an annual audit.

A dispute arose regarding Estoril's obligations to the limited partners. Estoril filed a declaratory judgment action seeking the court's opinion on its obligations. The defendants included KPMG Peat Marwick.

The limited partners alleged that Peat's performance in auditing Estoril's 1981 financial statements constituted negligence and gross negligence. Specifically, the partners alleged Peat had a duty to report Estoril's activities with other entities as related-party transactions that were material in scope. …

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