Court Hears KPMG Auditor Liability Case: Erases $38 Million Dollar Judgment

The NJ Supreme Court recently overturned a $38 million dollar judgment against accounting giant KPMG, after the court found that an accountant cannot be liable to a third party absent actual and specific knowledge that the audit would be used by someone other than the client.  See Cast Art Industries v. KPMG (Feb. 16, 2012).

In a decision that clarified the scope of an accountant’s potential liability, the court ruled that, "An auditor is entitled to know at the outset the scope of the work it is being requested to perform and the concomitant risk it is being asked to assume." The Court’s ruling offers a long awaited limitation of liability for the accounting industry. 
Massachusetts, Maine, and New Hampshire already follow some form of the restatement (Second) of Torts approach which limits an auditor’s potential liability to the class of persons that the auditor has agreed may rely upon the auditor’s report.

For further information please contact Ken Rubinstein at (617) 226-3868 or learn more about his Professional Services law practice here.