Rick prepared financial statements for MegaCorp knowing that it was going to use his statements to apply for a loan with Big Bank.When Big Bank turned MegaCorp down,it applied to Fourth Bank for a loan.MegaCorp presented the statements prepared by Rick to Fourth Bank,which gave the company a loan.It was discovered that Rick was negligent in preparing the statements,and Fourth Bank sued Rick.Under which of the following tests is Rick liable?
A)Ultramares doctrine
B)Foreseeable doctrine
C)Restatement doctrine
D)Both the foreseeable doctrine and the Restatement doctrine

Question

Quizplus · Accepted Answer

Rick is liable under both the foreseeable doctrine and the Restatement doctrine because these doctrines expand the scope of liability beyond the Ultramares doctrine, which limits liability to parties in privity of contract or known users of the financial statements. The foreseeable doctrine and the Restatement doctrine allow for liability to third parties that the accountant could reasonably foresee would rely on the financial statements, such as Fourth Bank in this scenario.

Rick Prepared Financial Statements for MegaCorp Knowing That It Was