Independent auditors can be held liable for a corporate client's fraud, even if they did not participate in or have direct knowledge of the misconduct, the New Jersey Supreme Court has ruled. Shareholders of the Physicians Care Network sued KPMG for malpractice on the ground that its auditors knew, or should have known, of the former CEO's improper activities. The court held that "the imputation doctrine does not prevent corporate shareholders from seeking to recover" based on an auditor's negligence.
July 10, 2006 at 12:00 AM
1 minute read
The original version of this story was published on Law.Com
Independent auditors can be held liable for a corporate client’s fraud, even if they did not participate in or have direct knowledge of the misconduct, the New Jersey Supreme Court ruled on June 28.
“[W]hen an auditor is negligent within the scope of its engagement, the imputation doctrine does not prevent corporate shareholders from seeking to recover,” Justice James Zazzali wrote in NCP Litigation Trust v. KPMG LLP, A-19-04.
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