Explain the Ultramares approach to third-party negligence suits against accountants.
What will be an ideal response?
Historically, third-party suits against accountants were generally barred by the privity doctrine. This doctrine limited recovery to those with a direct contractual relationship to the accountant. The rationale for the application of the privity doctrine in suits against accountants stems from the landmark case of Ultramares v. Touche. In Ultramares, the auditor had not been told that Ultramares Corporation was to receive 1 of the 32 signed copies of the certified balance sheet. Yet the auditors were clearly negligent in making their audit. They had accepted without question as accounts receivable $700,000 in fictitious sales, although these and other entries should have aroused their suspicions. Judge Cardozo refused to hold the accounting firm liable, and his rationale has been much quoted. He said: "If liability for negligence exists, a thoughtless slip or blunder, the failure to detect a theft or forgery beneath the cover of deceptive entries, may expose accountants to a liability in an indeterminate amount for an indeterminate time to an indeterminate class."
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HNW Ltd. HNW Ltd. manufactures and sells food processors. A popular consumer magazine has recently evaluated food processors and has ranked HNW's processors as being of "poor quality". As a result, HNW's management team has begun to analyze all costs associated with their food processors in more detail, and the following data has been compiled: Scrap costs $ 80,000 Quality training 75,000
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Fill in the blank(s) with the appropriate word(s).