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May Auditors Be Liable for Statements When Charity Officers Misrepresent Data?

May Auditors Be Liable for Statements When Charity Officers Misrepresent Data?

May Auditors Be Liable for Statements When Charity Officers Misrepresent Data?

PA Court narrows in pari delicto defense where auditors conspired with officers to produce false statements
When a charity or other organization sues its auditors for producing false financial statements, the auditor can often avoid liability if the officers of the organization provided false information for the audit. The auditors can be protected by the in pari delicto defense, which provides that in the case of mutual or equal fault, the case of the defender is stronger. The efforts of the unsecured creditors of the Allegheny Health Education and Research Foundation, which in 1998 filed the largest nonprofit bankruptcy up to that time, took on new life recently when the Pennsylvania Supreme Court disagreed with a federal District Court decision that had denied them the right to sue AHERF’s auditors for false financial statements. The Supreme Court has held that the in pari delicto defense will not apply when the auditors have conspired with the officers to produce the false statements.

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