Hastings Law Journal


In today's business world, the "unqualified opinion"-an auditor's statement that a business's financial statements conform to accounting industry standards-has become a prerequisite for attracting investment in business ventures. When third parties are economically injured after relying on such opinions, the question arises whether the auditor owes a duty of care to third parties.

From 1986 until 1992, California's answer was that an accountant was liable for injury to a third party if that injury was reasonably foreseeable. The 1992 California Supreme Court decision Bily v. Arthur Young discarded this approach in favor of new standard. The new standard requires a third party plaintiff to show that the accountant actually foresaw reliance by the third party.

This Note criticizes the court's reasoning in Bily. The court adopted this approach to protect accountants from disproportionate liability. However, the approach also has the effect of unjustly limiting the availability of recovery for injured third parties where reliance was reasonably foreseeable, but not actually foreseen, by the accountant.

The author suggests that the California legislature should pass legislation overruling Bily. To reconcile the interests of injured third parties and accountants, the new approach would combine reasonable foreseeability and proportionate liability. This approach would strike an equitable balance; accountants would be protected from disproportionate liability and injured third parties would be afforded an avenue of recovery.

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