Insider Trading and Other Auditor Independence Rules: What Litigators Should Know About Accountants’ Malpractice


One of the hallmarks of the public accounting profession is the requirement that auditors be independent from their clients, both in fact and in appearance – an obligation that is not imposed on other professional service providers. Recently, violations of auditor independence rules have become more prominent as bases for auditors’ liability litigation. Understanding these rules may thus be important to attorneys asserting accountants’ malpractice, as well as for those defending actions taken and work performed by the auditors.

A number of specific situations have been identified as causing an actual breach of auditor independence, or -- just as serious -- the appearance of such a breach. These include: employment relationships, insider trading, direct or material indirect financial interests, loans to and from clients, and business relationships. The foregoing are certainly not the only instances in which auditor independence, as defined by SEC or AICPA rules, could be lost or threatened. Common sense, and reasoning by analogy from the explicitly proscribed relationships, should be the guide.

Accounting and auditing expert Dr. Barry Jay Epstein, CPA, CFF, is available to discuss matters relating to auditors’ liability or accountants’ malpractice. He can be reached at or 312-464-3520.

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