ExpertMedium1 markMultiple Choice
CPA · Question 04 · Area 1: Ethics & Procedures
Under the Ultramares rule regarding accountant liability to third parties for negligence, which of the following parties would most likely be able to recover damages from an accountant who negligently prepared a financial statement?
Under the Ultramares rule regarding accountant liability to third parties for negligence, which of the following parties would most likely be able to recover damages from an accountant who negligently prepared a financial statement?
Answer options:
A.
Any third party who reasonably relied on the financial statement.
B.
A trade creditor who extended credit based on the statement, but whom the accountant did not know existed.
C.
A bank that the accountant knew was the primary intended beneficiary of the financial statement.
D.
An investor who bought stock in the company on the open market.
How to approach this question
Identify the three standards of liability: Ultramares (Privity/Near Privity), Restatement (Foreseeable Class), and Rosenblum (Reasonably Foreseeable). Ultramares is the strictest.
Full Answer
C.A bank that the accountant knew was the primary intended beneficiary of the financial statement.✓ Correct
A bank that the accountant knew was the primary intended beneficiary of the financial statement.
Under the Ultramares doctrine, an accountant is liable for negligence only to those in privity of contract or those who are intended third-party beneficiaries (the 'primary benefit' rule).
Common mistakes
Confusing Ultramares with the Restatement rule (which includes a limited class of foreseen users).
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