Cast Art Industries, LLC v. KPMG, LLP
New Jersey Supreme Court
36 A.3d 1049 (2012)
KPMG (defendant) had already begun auditing Papel Giftware's financial statements before CAI (plaintiff) began negotiating to acquire Papel; a KPMG representative told CAI's president in a conference call that the audits would be forthcoming, and CAI used those audited statements to secure financing and complete the acquisition, later discovering the statements were inaccurate due to accelerated revenue recognition. CAI sued KPMG for malpractice, a jury awarded $31.8 million, the appellate court partially reversed, and the case reached the New Jersey Supreme Court.
Whether an accountant may be held liable to a nonclient third party for reliance on audited financial statements where the accountant only later learned, without actually agreeing, that the third party would rely on those statements in a specific transaction.