a. How is an accountant's liability to third parties determined under the Restatement doctrine?
b. How is an accountant's liability to third parties determined under the Ultramares doctrine?
c. How is an accountant's liability to third parties determined under the Forseeable doctrine?
The First National Bank of Keystone could do nothing right, For five years, it issued risky mortgage loans on which borrowers defaulted. Keystone Management lied about the value of the loans. When the Office of the Comptroller of the Currency (OCC) began to smell trouble, it required Keystone to hire a nationally recognized independent accounting form to audit its books. Keystone hired Grant Thornton. Stan Quay was the lead partner on the account. Quay was negligent in conducting the audit and failed to notice a discrepancy of $515 million between reported and actual value of the loans.
As Quay was finishing up his audit, the board began talking with Gary Ellis about becoming president of the bank. Ellis was already employed, and was reluctant to move to a bank that the OCC was investigating. To reassure him, the Keystone board suggested he talk with Quay and look at the bank's financials. Quay told Ellis that Keystone would receive a clean, unqualified opinion. Ellis attended a shareholder meeting at which Quay announced that his opinion would be unqualified. He did ultimately issue a clean opinion reporting shareholder's equity of $184 million, when in fact the bank was insolvent. The first page of the report stated: "This report is intended for the information and use of the Board of Directors and Management of the First National Bank of Keystone and its regulatory agencies and should not be used by third parties for any other purpose." A week later, the Board voted to hire Ellis, who quit his job to come on board. Five months later, the OCC declared Keystone insolvent and shut it down. Ellis filed suit against GT, seeking compensation for his lost wages. The district court ruled in favor of Ellis and granted him $2.5 million in damages. GT appealed.
This question was answered on: Jul 11, 2017
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