Arthur Andersen LLP v. Superior Court

This writ proceeding concerns an audit of the 1991 financial statements of Cal-American Insurance Company. The audit was performed by the major international accounting firm, Arthur Andersen LLP (AA). AA issued an audit report containing the three typical paragraphs: introductory, scope and opinion. The introductory paragraph identified the financial reports that AA had reviewed: Cal-American’s balance sheet plus “related statements of operations, stockholder’s equity and cash flows.” The scope paragraph identified the level of scrutiny to which these documents had been subjected—an audit conducted in accordance with generally accepted auditing standards (GAAS)—and also contained standard language noting that GAAS required AA to “plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.” The opinion paragraph stated AA’s opinion, phrased in standard language, that Cal-American’s financial statements “present fairly, in all material respects, the financial position of Cal-American . . . and the results of its operations and its cash flows ... in conformity with generally accepted accounting…