## Facts

- Main Hurdman, a CPA firm, audited the financial statements of First Bank & Trust and issued an unqualified report stating the statements fairly presented the bank’s condition under GAAP and that the audit complied with GAAS.
- First Bancorp of Idaho acquired and took control of First Bank & Trust; the audit report became part of information used in connection with the acquisition and related financing.
- Idaho Bank & Trust Co. later loaned money to Bancorp, alleging it relied on the audited financial statements and report in deciding to extend credit and in assessing financial condition.
- Bancorp defaulted on the loan, causing Idaho Bank substantial losses.
- Idaho Bank sued Main Hurdman for professional negligence/negligent misrepresentation, asserting the audited statements materially misstated financial condition and induced the loan and resulting loss.

## Issues

1. Whether an accountant owes a duty of care for negligent misrepresentation to a non-client third-party lender that relied on the accountant’s audit report, absent contractual privity.
2. What standard governs accountant liability to non-clients: strict privity, a broad foreseeability rule, or a limited class/near-privity approach.

## Decision

- The Idaho Supreme Court held that lack of strict privity does not categorically bar a non-client lender’s negligence-based claim against an auditor.
- The court adopted the Credit Alliance near-privity test as Idaho’s standard for accountant liability to non-client third parties.
- The court rejected a broad foreseeability rule that would expose auditors to open-ended liability to an indeterminate class of users.
- The court recognized a cause of action for negligent misrepresentation against accountants under the adopted limited-class framework.
- The court reversed the dismissal of Main Hurdman and remanded for further proceedings to determine whether the near-privity elements could be proven.

## Legal Principles

- An accountant may be liable to a non-client for negligent misrepresentation when:
  - the accountant knows the report will be used for a particular purpose,
  - the accountant knows the plaintiff is a member of a limited, identifiable class intended to rely on the report (or known to be supplied it), and
  - the accountant engages in conduct linking it to the plaintiff (or class) that shows the accountant’s understanding of the plaintiff’s reliance.
- Idaho follows the Credit Alliance “near-privity” approach as a middle position between strict privity and unlimited foreseeability.
- Negligent misrepresentation provides a tort basis for recovering economic losses caused by negligent audit-related misstatements, but only within the limited class defined by the near-privity elements.

## Conclusion

The Idaho Supreme Court adopted the Credit Alliance near-privity test for auditor liability to non-clients, recognized negligent misrepresentation in the accountant-liability setting, and reinstated a lender’s claim where the pleadings plausibly alleged the auditor knew of a specific financing purpose, a limited relying class, and linking conduct supporting reliance.


Idaho Bank & Tr. Co. v. First Bancorp of Idaho, 772 P.2d 720 (Idaho 1989)