When an accountant negligently prepares a financial statement knowing that the client intends to use it in obtaining a loan from a bank, the accountant will be liable to whichever lender actually makes the loan under the __________rule.

Question

Quizplus · Accepted Answer

The foreseeable user rule states that an accountant can be held liable to any third party who they should have known would rely on their financial statement. In this case, the accountant knew that the client intended to use the financial statement to obtain a loan from a bank, so any lender who actually makes the loan would be a foreseeable user and could hold the accountant liable for negligence. The known user rule and privity rule are both outdated and not widely recognized, and the contact rule is not applicable in this scenario.

When an Accountant Negligently Prepares a Financial Statement Knowing That