Opinion ID: 2226595
Heading Depth: 1
Heading Rank: 20

Heading: Other Damages

Text: Remaining is the ability of World Radio to recover the accounting fees paid to Coopers & Lybrand for 1982 through 1984. The jury's verdict finding Coopers & Lybrand negligent in preparing the audit reports for World Radio during this period is undisputed. In addition, the parties stipulated that World Radio had paid fees in the amounts of $13,000, $14,000, and $15,000 for 1982, 1983, and 1984, respectively. Although this court has not specifically addressed the issue, we believe that an accountant is not entitled to fees for preparing false financial statements. In reaching this conclusion, we adopt the rule as set out in the Court of Appeals' opinion in this case and as set out at 1 Am.Jur.2d Accountants § 13 at 537 (1994): While minor inaccuracies in an audit or report may be overlooked, where by reason of the accountant's negligence, inaccuracies and failure to report facts of serious character appear, he or she is not entitled to compensation. And when compensation is paid to an accountant in reliance upon his or her report, it may be recovered, upon proof that through the accountant's negligence, the audit was in substance, false. See, also, Ryan v. Kanne, 170 N.W.2d 395 (Iowa 1969); Allen County Comm'rs v. Baker, 152 Kan. 164, 102 P.2d 1006 (1940). The evidence adduced at trial establishes that Coopers & Lybrand charged World Radio $42,000 for the preparation of inaccurate financial reports for the period of 1982 through 1984. In accordance with the rule set forth above, Coopers & Lybrand should not have been compensated for its negligent work in preparing the inaccurate reports. Thus, we conclude that World Radio is entitled to an award of $42,000. In addition to these fees, the Court of Appeals concluded that there was sufficient evidence in the record that World Radio also paid large accounting fees to Arthur Young as a result of Coopers & Lybrand's negligence but that the jury was not properly instructed on the issue. We agree. Unlike the fees paid to Coopers & Lybrand, however, the precise amount of the fees paid to Arthur Young as a result of Coopers & Lybrand's negligence cannot be ascertained from the record before us. For that reason, this cause must be remanded on this issue.