Limiting Auditors Defenses in Negligence Lawsuits: Recent Developments in the Audit Interference Rule

Abstract

The objectives of this article are to: (1) define the audit interference rule (hereinafter #x201C;A.I.R.#x201D;) and describe its purpose; (2) summarize the historical case law pertinent to the A.I.R.; (3) delineate the U.S. states that recognize the A.I.R. from those that do not; (4) explain how the A.I.R. is impacted by the existence of a state#x2019;s comparative negligence statute; and (5) tell how recent developments in case law are affecting the A.I.R. The purpose of the A.I.R. is to limit the scope of an auditor#x2019;s contributory negligence defense in a negligence lawsuit filed by a client. The A.I.R. provides that the client#x2019;s negligence is a defense only when it has contributed to the accountant#x2019;s failure to perform his contract and to report the truth. New York was the first state to recognize the A.I.R.; other states adopting the rule include Illinois, Kansas, Mississippi, Nebraska, Oklahoma, Pennsylvania, Texas and Utah. These states have either never recognized the A.I.R, or have abolished it.: Arkansas, Florida, Michigan, Minnesota and Ohio. Recent case law has highlighted several developments in the A.I.R., including: (a) an auditor accused of professional negligence may be required to specifically state how the client#x2019;s alleged negligence interfered with the auditor#x2019;s ability to conduct the audit; (b) the A.I.R. may also be applicable whenever a third-party beneficiary of an audit, such as a bank, sues an auditor for professional negligence; (c) the A.I.R., which limits the scope of an auditor#x2019;s contributory negligence defense, has nothing to do with the separate in pari delicto defense which, if applicable, operates as an absolute bar to a claim based on equally wrongful acts of both parties; and (d) the court#x2019;s granting of a jury instruction on a client#x2019;s alleged contributory negligence should be the exception, not the rule.