Accountants' legal liability: A crisis that must be addressed

A jury came in with a $338 million verdict in an Arizona bank acquisition case, and that case raises a number of questions about the legal system and the role of auditors in the society and economy. The plaintiff was Standard Chartered Bank, a London-based international bank that bought United Bank of Arizona for $335 million in 1987. The case points up the issue of what can be expected from public accounting partnerships, and what is likely to happen to them if the public continues to expose them to such liability. Expectations about what auditors should be responsible for have risen dramatically and, in spite of the inherent limits of auditing, Congress seems intent on requiring accounting firms to do even more. Without sufficient insurance, individual accounting firm partners are personally at risk in litigation. However, it has been argued that the incentives to meritless litigation be reduced by taking several steps which include ending joint and several liability and changing standards of proof.