North Carolina Supreme Court Agrees to Hear Case Involving Auditors’ Fiduciary Duties to Clients

April 23, 2015

GavelThe American Institute of CPAs (AICPA), the North Carolina Association of CPAs (NCACPA) and the Center for Audit Quality (CAQ) have joined forces to file an amicus curiae brief with the Supreme Court of North Carolina in support of an accounting firm in the matter of Commscope Credit Union v. Butler & Burke.  The NCACPA and the AICPA previously filed a joint amicus brief urging the court to grant review of the case.  (See the story in the January issue of The CPA Advocate about the AICPA’s earlier amicus brief.)

The case involves a credit union that was penalized by the Internal Revenue Service for failing to file its federal Form 990 over of a number of years.  The credit union in turn sued its auditor alleging, among other things, that the CPA firm breached its fiduciary duty to the credit union.  The firm moved to dismiss all claims and the trial court granted the motion.  On appeal, however, the appellate court reversed the trial court’s decision.  In its ruling, the appellate court held that it was possible a fiduciary relationship may exist between the auditor and audit client based on a standard audit engagement.  Although no North Carolina court had squarely addressed this issue before, the appellate court’s decision departs from settled precedent in numerous other jurisdictions recognizing that the auditor-client relationship by its nature cannot be a fiduciary one.  The audit firm petitioned the Supreme Court of North Carolina for discretionary review, and the petition was granted.

The amicus brief filed by the NCACPA, AICPA, and CAQ on April 6 urges the Supreme Court of North Carolina to reverse the appellate court’s decision, noting that the appellate court holding that an auditor may owe a fiduciary duty to an audit client cannot be reconciled with professional auditing standards and North Carolina law, which mandate an auditor be independent of the audit client.  In informing the Supreme Court of North Carolina that an auditor is required to act independently, objectively and impartially, and without bias to the audit client, the NCACPA, AICPA, and CAQ request that longstanding principles of auditor independence be upheld in North Carolina.