Academic journal article Journal of Accountancy

Statute of Limitations Clock Starts Ticking on Discovery

Academic journal article Journal of Accountancy

Statute of Limitations Clock Starts Ticking on Discovery

Article excerpt

The U.S. District Court of Appeals for the Seventh Circuit ruled the statute of limitations period in an accountant's malpractice suit began to run when the injured party knew or reasonably should have known of his or her injury and reasonably should have known it was wrongfully caused.

City National Bank of Florida (CNB) sued Checkers, Simon & Rosner, CPAs, for alleged negligence in the preparation of compiled financial statements for Robert Sheridan for the period from 1987 to 1990. The bank alleged it relied on the statements in extending a $500,000 credit to Sheridan. The financial statements represented that he had a net worth in excess of $31 million.

After the loan was made, Sheridan missed several repayment dates. On July 26, 1990, CNB declared him in default and requested additional financial information from him. The bank discovered financial statement representations were false, inaccurate and misleading. CNB sued Sheridan on October 2, 1990. In the spring of 1991 Sheridan declared bankruptcy.

On March 26, 1992, CNB took a deposition from the Checkers partner in charge for the Sheridan account. The bank alleged it learned that Checkers was at all relevant times aware of the false, misleading and grossly exaggerated nature of Sheridan's representations in the 1987-1990 financial statements. On September 29, 1992, the bank filed suit against Checkers. On May 6, 1993, Checkers filed a motion to dismiss this suit, based on the two-year Illinois statute of limitations period. …

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