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The absence of privity alone should not bar negligence actions by relying third parties against accountants.
Defendant accountants prepared erroneous financial statements for a corporation, which received loans from plaintiff bank. After the errors were corrected, plaintiff bank recalled the corporation's loans, bankrupting the corporation. Plaintiff bank sued defendant accountants for malpractice. Defendant accountants filed for summary judgment, claiming that the liability did not extend to plaintiff bank, which was a relying third party not in privity. The trial court granted summary judgment for defendants and the lower appeals court affirmed. Plaintiff bank challenged the decision.
May an accountant be held liable for the negligent preparation of an audit report to a third party not in privity who relies on the report?
On appeal, the court reversed and remanded the case, holding that the absence of privity did not bar negligence actions against accountants by third parties relying on information prepared by the accountants.