An accounting firm creates financial statements for a large company. The accounting firm is creating the statements for an initial public offer that is likely going to be happening in the next month. The company gives the name of the underwriting firm and tells the firm to forward the end result to company to determine what their take of the offer should be, as well as to prepare the prospectus. After the offering, there is a major error uncovered, and the underwriting firm should have made a significantly different deal with the company. The underwriting firm sues the accounting firm. Is the underwriting firm likely to win in a state that employs the Primary Benefit Test?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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An accounting firm creates financial statements for a large company. The accounting firm is creating the statements for an initial public offer that is likely going to be happening in the next month. The company gives the name of the underwriting firm and tells the firm to forward the end result to company to determine what their take of the offer should be, as well as to prepare the prospectus. After the offering, there is a major error uncovered, and the underwriting firm should have made a significantly different deal with the company. The underwriting firm sues the accounting firm. Is the underwriting firm likely to win in a state that employs the Primary Benefit Test?

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No, because there is no way to have foreseen the underwriting firm using the statements in the manner that they did.

 

No, because there was no privity of contract with the underwriting firm (the company was the client).

 

Yes, because the accounting firm knew the name of the third party, the purpose of their work, and that the third party would be using the information.

 

Yes, because in a Primary Benefit state, everyone who could be a foreseen user is can sue for negligence.

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