Erasing a $38 million dollar judgment against KPMG, the state Supreme Court held Thursday that an accountant can't be held liable to third parties without specific knowledge — at the time the client relationship begins — that third parties will rely on its reports.
"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 said in a ruling that provides a welcome limitation of liability for the accounting industry in the state.
The justices, in Cast Art Industries v. KPMG, A-51/52-10, overturned the Appellate Division's holding that, under the Accountant Liability Act, accountants' knowledge of third-party reliance any time during their "engagement" with their client exposes them to liability.
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