Managerial fraud and corporate mismanagement are pervasive in today's economic climate. Previously healthy coporation find themselves in economic turmoil and even in the throes of bankruptcy. Oftentimes these corporate failures can be prevented through responsible management and proper gatekeeping. Accountants, as vital intermediaries between corporations and the parties they do business with, ensure the credibility of corporate financial statements. This gatekeeping function cannot be underestimated. Accountants have the power to prevent corporation from taking on unnecessary debt via misstatements of corporate financial health. This Note proposes that the tort of deepening insolvency is a method of ensuring that accountants, by taking steps to prevent managerial fraud from bankrupting companies, will fulfill their gatekeeping role. Deepening insolvency will force accountants to use due care when certifying financial statement that will enable corporations to incur further debt, possible to the detriment of the corporation. While deepening insolvency has been widely criticized by scholars and Delaware state courts, this tort is viable and necessary when brought by the trustee of a bankrupt corporation against its former, negligent accountant.
Where Were the Accountants? Deepening Insolvency as a Means of Ensuring Accountants' Presence When Corporate Turmoil Materializes,
78 Fordham L. Rev. 793
Available at: https://ir.lawnet.fordham.edu/flr/vol78/iss2/11