The Ultramares Doctrine Is That Ordinary Negligence Is Insufficient for Liability

question 42

Multiple Choice

The Ultramares doctrine is that ordinary negligence is insufficient for liability of auditors to third parties because of the lack of privity of contract between the third party and the auditor. What type of behaviour on the part of an auditor would result in liability to more general third parties according to this doctrine?

• A) conducting an audit engagement when a review engagement had been contracted
• B) completing work in accordance with a contract that was signed with the client
• C) deliberate misstatement of the financial statements by management remaining undetected
• D) fraud or constructive fraud with respect to the working papers

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Definitions:

Discharge

The termination of an obligation, such as a contractual duty or a financial debt, usually upon the completion of the terms agreed upon.

Preprinted Promissory Note

A written, standardized promise to pay a specified amount of money on demand or at a defined time, with predefined terms.

Due Date

The specified day by which an obligation must be fulfilled or a task completed.

Indorsement

A signature or stamp placed on a document that confirms and details the signing authority's approval of the document.