Accountant's Liability to Third Parties. Credit Alliance Corp is a major financial ser-vice company engaged primarily in financing the purchase of capital equipment through installment sales and leasing agreements. As a condition of extending additional major financing to L. B. Smith, Credit Alliance required an audited financial statement. Smith provided Credit Alliance with an audited financial statement prepared by the accounting firm of Arthur Andersen & Co Later, on Smith's petitioning for bankruptcy, it was discovered that Smith, at the time of the audit, had been in a precarious financial position. Credit Alliance filed suit against Arthur Andersen, claiming that Andersen had failed to conduct investigations in accordance with proper auditing standards and that Andersen's recklessness had resulted in misleading statements that caused Credit Alliance to incur damages. In addition, it was claimed that Andersen knew, or should have known, that Credit Alliance would rely on these statements in issuing credit to Smith. Discuss whether Credit Alliance, as a third party, could hold Arthur Andersen liable in a negligence action.
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