The Privity Rule

question 26

Multiple Choice

The privity rule:

• A) allows for an accountant's client to recover from an accountant in a negligence malpractice suit.
• B) allows for a third part to recover from an accountant in a negligence malpractice suit.
• C) both a.and b.
• D) neither a.nor b.

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Definitions:

First Year

The initial year of operation, production, or accounting period.

Absorption Costing

An accounting method that integrates all costs associated with manufacturing, from direct materials and labor to variable and fixed overheads, into the final cost of a product.

Variable Costing

A costing method that includes only variable production costs (direct materials, direct labor, and variable manufacturing overhead) in the cost of goods sold, excluding fixed overhead.

Operating Income

The profit realized from a business's operations after deducting operating expenses such as wages, depreciation, and cost of goods sold.