Academic journal article Journal of Accountancy

Florida Reverses Privity Ruling

Academic journal article Journal of Accountancy

Florida Reverses Privity Ruling

Article excerpt

FLORIDA REVERSES PRIVITY RULING

In a setback to auditors, the Florida Supreme Court reversed the favorable appellate court ruling in First Florida Bank v. May Mitchell and Company. As reported here previously, a Florida appellate court refused to hold an accountant liable for negligence or gross negligence to a third party despite the accountant's specific knowledge of reliance by this party on his audited financial statements (see JofA, Oct. 89, page 22).

In reviewing the case, the Florida Supreme Court posed the following question: When an accountant fails to exercise reasonable and ordinary care in preparing the financial statements of his client, and when the accountant personally delivers and presents the statements to a third party knowing the statements will be relied on by the third party to loan to or invest in the client, is the accountant liable for the damages suffered by the third party despite a lack of privity between the accountant and third party?

In answering this question, the Florida Supreme Court found an accountant may be held liable for damages suffered by third parties not in privity that resulted from the accountant's negligence if the accountant knew those third parties would rely on the accountant's opinion. …

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