## Facts

- Timm, Schmidt & Co., S.C., an accounting firm, prepared Clintonville Fire Apparatus, Inc. (CFA) financial statements for 1973–1976, including comparative financial condition and income-related statements.
- For each year except 1973, the firm issued an opinion letter stating the financial statements fairly presented CFA’s financial condition and conformed to generally accepted accounting principles.
- In November 1975, CFA obtained a \$300,000 loan from Citizens State Bank, guaranteed by the Small Business Administration.
- Citizens alleged it relied on the accounting firm’s statements and audit opinions when extending and later renewing CFA’s credit.
- The accounting firm later discovered substantial errors in CFA’s statements (reported as totaling about \$400,000) and notified creditors.
- Creditors called loans due; CFA went into receivership and was liquidated and dissolved.
- Citizens sued the accounting firm and its insurer for negligence, seeking to recover losses remaining on the CFA loan.

## Issues

1. Whether an accountant may be liable in negligence to a third party not in privity who relies on the accountant’s audit report.
2. Whether summary judgment was proper given the record on negligence, reliance, and causation.

## Decision

- The Wisconsin Supreme Court held an accountant may be liable to a third party not in privity for negligent preparation of an audit report under Wisconsin negligence law.
- The court rejected a strict privity bar and treated the duty question under ordinary negligence principles, subject to public-policy limits.
- The court concluded the record raised material factual disputes, including the alleged errors and whether the bank relied reasonably on the audit materials.
- The court reversed the court of appeals, vacated summary judgment for the accountant, and remanded for trial on the negligence claim.

## Legal Principles

- Professional negligence claims against accountants are governed by general negligence law rather than contract privity rules.
- An accountant’s duty of care may extend to third parties when their reliance on the accountant’s work is reasonably foreseeable.
- Prior Wisconsin authority requiring privity for third-party recovery against accountants was overruled to the extent inconsistent with this negligence framework.
- Summary judgment is improper when the record presents genuine disputes of material fact on negligence, reliance, or causation.

## Conclusion

The court allowed a lender’s negligence claim against an accountant to proceed without a privity requirement, holding that foreseeable third-party reliance can support a duty of care and that factual disputes precluded summary judgment.


Citizens State Bank v. Timm, Schmidt & Co., 113 Wis. 2d 376, 335 N.W.2d 361 (Wis. 1983)