Ultramares v Touche 255 NY 170 1931. Touche, a firm of public accountants had been hired by Fred Stern & Co to prepare a report on its financial condition. The accountants produced a certified statement of audit, representing the condition of Stern & Co. Hoping to attract financing, Stern made 32 copies of the audit available to interest parties. Ultramares Corp took a copy and on the basis of its findings loaned money to Stern. The audit report mistakenly included an accounts receivable of $750,000 as an asset. This made Stern appear solvent and Ultramares loaned Stern a substantial sum of money. Stern was actually insolvent and soon went in bankruptcy. Ultramares sued Touche for recovery of the loan.

a. Ultramares relied on the accuracy of Touche’s audit. Should Touche be held responsible for the consequences of this reliance? Under what conditions?

b. Suppose that the court rules for Touche. How does that change incentives for future users of publicly available audit reports?

c. Suppose that the court rules for Ultramares. How does that change incentives for public accounting firms?

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a Auditors perform audit of financial statement and sign audit report these reports are the auditors ... View the full answer