Academic journal article Journal of Accountancy

AICPA Not Negligent in Promulgating Professional Standards

Academic journal article Journal of Accountancy

AICPA Not Negligent in Promulgating Professional Standards

Article excerpt

The Supreme Court of Connecticut ruled that the American Institute of CPAs did not owe a duty of care to investors who relied on financial reports prepared in accordance with standards that have been promulgated by the AICPA.

The plaintiff, Barbara Waters, purchased a partnership interest in Colonial Potomac Limited Partnership in November 1986. Colonial's marketing documents included financial reports that were prepared by Kostin and Co., an accounting firm that is a member of the AICPA division for CPA firms. The reports included a financial forecast containing a statement that the accounting firm had followed the AICPA standards in preparing the forecast. The plaintiff, who allegedly had relied on this report in investing in Colonial Potomac, subsequently lost the money that she had invested.

The plaintiff alleged that either the firm had failed to follow AICPA standards in preparing this report or, if it had, the standards themselves had been negligently promulgated. The plaintiff alleged that the negligent promulgation of standards had caused her to suffer both economic loss and emotional distress.

The trial court granted the Institute's motion to dismiss on the grounds that the AICPA owed no duty of care to the plaintiff, and the plaintiff failed to allege the elements necessary to establish a claim against the AICPA for negligent infliction of emotional distress. …

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