Gamma Company Asks Prudent Prime Westin LLP (PPW),a CPA Firm,to

question 78

Essay

Gamma Company asks Prudent Prime Westin LLP (PPW),a CPA firm,to audit its financial statements.Gamma tells PPW that it plans to use the statements to obtain a loan from Fain Bank.PPW prepares the statements.Gamma uses the statements to obtain a loan from Shaw Bank.The statements falsely state Gamma's financial position due to PPW's negligent preparation of them.When Gamma defaults on the loan,Shaw Bank sues PPW under the common law of negligence.Does PPW have liability to Shaw Bank under the rule of Ultramares? Does PPW have liability to Shaw Bank under the rule of the Restatement (Second)of Torts?

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Definitions:

Impairment Losses

Financial losses recognized when the carrying amount of an asset exceeds its recoverable amount.

Operating Segments

Sections of a business that engage in activities from which earnings can be directly attributable, often requiring separate financial reporting due to distinct economic environments or regulatory requirements.

Geographical Segments

This refers to divisions within a company based on geographical areas, useful for assessing performance and making decisions in different regions.

Current Accounting Standards

The prevailing authoritative accounting rules and guidelines that govern financial reporting and are accepted by the regulatory bodies.