Question

Finola, a certified public accountant, provides accounting services to Global Trade Corporation. The services include preparing...

  1. Finola, a certified public accountant, provides accounting services to Global Trade Corporation. The services include preparing Global Trade’s financial reports and issuing opinion letters based on the reports. In 2014, Global Trade falls into serious financial trouble, but neither Finola’s reports nor her opinion letters indicate this situation. Relying on Finola’s portrayal of Global Trade’s financial situation, the firm borrows a large sum of money to build a new shipping facility. In lending Global Trade the money, Harbor City Bank relies on Finola’s opinion letter. Finola is aware of this reliance. If Finola did not engage in intentional fraud but was negligent, what is her potential liability?

Homework Answers

Answer #1

In the given case, most of the courts would consider Finola liable for negligence. As per the Ultramares rule, accountants have a duty of care only to people for whom the reports are prepared. Thus Finola will not be held liable to the bank. However as per some courts, if the third party has a connection with the accountant, then accountant-client relationship is not necessary to be proved. Thus Finola will be held liable because she knew that the bank had relied on her letter. As per Section 552 of the Restatement (Second) of Torts, accountant is liable to the people for whom the report is prepared and to those people who are supposed to be influenced by the report. Thus Finola will be held liable to the bank for negligence, because she knew that the bank was relying on her report.

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