An Entity Not in Privity with an Accountant Is Prohibited

question 32

True/False

An entity not in privity with an accountant is prohibited from recovering against the accountant for malpractice when the accountant had no knowledge of any use that could affect the party.

---

Definitions:

Predetermined Overhead Rate

A rate used in cost accounting to allocate manufacturing overhead costs to products based on a planned level of activity or driver, such as machine hours or labor hours.

Machine-Hours

A measure of production volume or activity based on the number of hours machines are in operation.

Unused Capacity

The available production capability that is not being utilized by a company.

Capacity

It is the maximum level of output that a company can sustain to produce in a given period under normal conditions.