The Eleventh Circuit Court of Appeals recently affirmed a lower court decision regarding auditor liability in Kapila v. Grant Thornton, LLP. The decision reflected what the AICPA and the Florida Institute of CPAs (FICPA) had asked for in a joint amicus brief. The amicus brief argued in favor of a well-established legal defense barring claims against independent auditors related to fraud perpetrated by the company’s officers.
The brief focused on three key areas:
- The auditor’s role in respect to the s company management’s role;
- The auditor-client relationship;
- The public policy consequences of eliminating or limiting a common-law doctrine called in pari delicto that means an organization (the client) cannot recover damages from professional services providers when the client has engaged in wrongdoing.
The brief presented public policy arguments that the in pari delicto doctrine allocates responsibilities and aligns incentives in an appropriate way. For example, company directors are incentivized to oversee management and independent auditors have ample incentives to perform their jobs competently.