Caprer v. Nussbaum legal implications
Malpractice threats to accountants are getting worse and worse as time goes on. A recent case, Caprer vs. Nussbaum, increases the risk that CPA’s face.
Historically, in order to sue an accountant you need privity, a relationship with the accountant. Privity is based on the 3 prong test: Firstly, you must be aware, as the accountant, that your financial reports will be used for a particular purpose. Second, the plaintiff must be a client, and it must be known that he/she is going to use the reports for a specific purpose. Lastly, the accountant showed through his or her conduct the understanding that these records would be used for that reason. (i.e. a meeting, a delivery, etc.) If no privity can be established, one can only sue under a stronger standard of proof for fraud.
The Caprer vs. Nussbaum case brings a new way that an accountant can be sued:
If your client agreed to give the financial records to a third party (bank, credit agency, etc.), that agreement works as evidence that the third party can sue the accountant on a breach of contract for failing to perform properly. This can make the privity test irrelevant.