[startupcfo]

Let’s say a CPA audits ABC Company, but has failed to detect fraud at ABC. ABC Company has borrowed money from a creditor known as XYZ Bank.

Can XYZ Bank sue the CPA? On page 29 of the Ninja notes, it suggests that the bank cannot do so because of a lack of privity (contractual relationship)

However, on page 28, it mentions the Ultramares rule, stating that even 3rd parties can sue because they relied on the audit opinion.

Which is it!?

BEC - 87 | 02/28
REG - 70 | 06/10, REMATCH | 08/30
AUD - XX | 09/10
FAR - XX | 12/10

[Bnots]

I'm still studying this area myself, but my understanding is that suits falling under Ultramares require privity to sue for ordinary negligence. However, an injured third party can still sue for gross negligence or fraud without privity if they meet the other conditions, among which reliance is one.

ETA: Subsequent rulings have chipped away at Ultramares, allowing foreseen or even foreseable third parties in some jurisdictions to sue for ordinary negligence, if I remember correctly.

[Author]

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