Claus tells CPA Vernon that he needs an audit to borrow money from Big Bank.Claus pays Vernon,and Claus takes Vernon's audit to Big Bank who makes the loan.When Claus defaults on the loan,Big discovers numerous liabilities that the audit did not reveal.Can Big Bank sue Vernon for negligence in a state that recognizes the near-privity rule?

Question

Quizplus · Accepted Answer

C) Yes, because Big was an actually named third party. Under the near-privity rule, a third party who is known and intended to rely on the work of a professional (such as an auditor) can sue for negligence if the work was performed with the knowledge that the third party would be relying on it. In this case, since Vernon knew the audit was for Big Bank's benefit, Big Bank can sue for negligence due to the undisclosed liabilities.

Claus Tells CPA Vernon That He Needs an Audit to Borrow