the third party. In the Ultramares v. Touche case‚ the judges found that a liability arose out of a duty that Touche‚ the accounting firm‚ owed to the non-client‚ Ultramares. Touche certified that their client‚ for whom they were performing the audit‚ was solvent when in fact it was not. In the case‚ it is pointed out that Touche knew their client was borrowing at large sums and required “certified balance sheets for continuing existing loans and securing new loans” (Ultramares). However‚ the auditors
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Touches independent audit‚ Ultramares (plaintiff) extended several loans to Fred Stern and when Fred Stern collapsed‚ Ultramares was unable to
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Third Party Table Of Contents Introduction 2 The Ultramares Doctrine 3 Foreseen Users 5 Auditors Defenses against Third Party Suits 8 The Impact of the Doctrine 10 Conclusion 11 References 12 Introduction This purpose of this research paper is to provide information about the importance of accountant’s liability to third party. In 1931‚ the case of Ultramares Corporation v. Touche brought about a very crucial segment of accountants
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to its business nature that required large amounts of working capital‚ in 1924‚ Stern requested a loan from Ultramares Corporation. Ultramares in order to approve the load to Stern‚ required the audited balance sheet of 1923. Stern’s independent auditor was Touche‚ Niven & Company. Stern provided the balance sheet and by the end of 1924‚ it managed to derive loans of $165‚000 from Ultramares and $300‚000 from 2 local banks. Unfortunately‚ not a long time later‚ in January 1925‚ Stern declared bankruptcy
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Stern & Company‚ Inc. (Ultramares Corporation v. Touche et al.) Fred Stern & Company‚ Inc. was a rubber importer based out of New York City during the 1920s. This capital-intensive business was in high demand for numerous industries at the time. As such‚ Fred Stern & Co. relied heavily on lenders to finance its daily operations. In 1924‚ Fred Stern & Co. approached a finance company named Ultramares Corporation for a loan of $100‚000. Before accepting the terms‚ Ultramares Corp. requested an audited
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third party does not have privity. If fraud or gross negligence has not been committed‚ four common-law standards exist for determining the types of third parties than can successfully sue auditors for ordinary negligence: 1. Privity (p. 699); Ultramares case a. contract or specific agreement exists between the two parties b. if using this standard‚ third parties generally cannot sue the auditor because they’re usually not involved in the agreement‚ even if the auditor was negligent 2. Near privity
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(1998) National Professional Liability Insurance Agency- Engagement Letter Outlaws Legal Service. Accountant ’s Legal Responsibilities. 2000. Nov. 2007. < http://www.outlawslegal.com/refer/ch40.htm>. Washington: Mar. 1991. Vol.36‚ Iss.3; pg.24-28. Ultramares Corp. v. Touche – 174 N.E. 441‚ 1931 N.Y. Lexis 660 (N.Y. App.). U.S. v. Simon - 425 F. 2d 796 C.A.N.Y (1969). Vinson & Elkins LLP. "Accountant Liability Case Watch. Oct. 2007. <http://www.velaw.com/mcso/shared/litigation/AccountantLiabilityCaseWatch2007-
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damages arising from this negligence. There are three major rules of liability that a state can adopt in determining whether an accountant is liable in negligence to third parties. 1.The Ultramares doctrine 2.Section 552 of the Restatement (Second) of Torts 3.The foreseeability standard Ultramares doctrine is a rule which says that an accountant is liable only for negligence to third parties who are in privity of contract or in a privitylike relationship with the accountant. It provides
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reasonable care in the performance of services. Answer: False Difficulty: Easy 2. Most of the burden of affirmative proof is on the defendant under common law. Answer: False Difficulty: Medium 3. The Ultramares v. Touche case held that auditors could be held liable to any foreseen third party for ordinary negligence. Answer: False Difficulty: Medium 4. The Securities Exchange Act of 1934 offers recourse against the auditors to a
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CHAPTER 4 Legal Liability Of CPAs Review Questions 4-1 There are several reasons why the potential legal liability of CPAs for professional "malpractice" exceeds that of physicians and other professionals. One reason is the vast number of people who may sustain damages. If a physician or attorney commits a serious error‚ the number of injured parties generally is limited to one individual patient or client. When a CPA’s report is in error‚ literally millions of investors
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