12 Accountant's : Iability to Third Party

2622 Words Nov 5th, 2012 11 Pages
12
Accountant’s Liability to 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 liability to their clients. In this case, accountants were found negligent to the creditors. At this time, accountants were not liable to creditors because they were not primary beneficiaries and
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The court held that only one who enters into a contract with an accountant for services can sue if those services are rendered negligently.
According to a summary by Miller and Jentz, “Fundamentals of Business Law”, The Ultramares case made three contributions to tort New York City law. These contributions are as follows: i. Negligence is insufficient basis for determining liability for innocent misrepresentation. ii. An untrue certificate of fact is sufficient basis for determining liability for fraud in other words, express intent to deceive need not be shown. iii. An incorrect certificate of opinion is not a sufficient basis for determining liability for fraud unless the grounds supporting the certificate are so flimsy that they indicate a lack of good faith sufficient to raise an inference of fraud the “flimsy grounds” will take the place of intent to deceive in this action and express intent need not be shown.

Foreseen Users
The concept of foreseen users came about in order to permit a wider variety of third parties to claim for possible damages incurred due to negligence or fraud by the auditor. Most courts are now willing to go beyond the concept of privity which is a contractual relationship in order to specify a duty of care for this wider range of third parties. The idea behind the concept on foreseen users is to state that auditors have a due care to conduct their work being conscious that third parties will rely upon their report to

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