Question

Jim tells his independent accountant, Rachelle, to prepare a financial statement for his business associate, Mel. If Rachelle is negligent in her preparation of this financial statement, who will be liable if Mel suffers actual financial loss due to her negligence?

1) Rachelle will be liable if Mel suffers actual financial loss due to her negligence.
2) Jim will be liable if Mel suffers actual financial loss due to Rachelle's negligence.
3) Rachelle will still not be liable to Mel.
4) Mel will not recover any money for financial loss due to her negligence because the business associate is not an actually named third party.

Answer 1

The correct answer is 1) Rachelle will be liable if Mel suffers actual financial loss due to her negligence.

Step-by-step explanation:

When an independent accountant like Rachelle is negligent in the preparation of financial statements, liability for the resulting financial loss is determined based on the relationship between the parties involved and the scope of duty owed by the accountant. Rachelle owes a duty of care to Jim as her client and potentially to third parties like Mel if they were intended beneficiaries of her work. If Mel suffers an actual financial loss due to Rachelle's negligence, generally speaking, Rachelle would be liable as she breached her professional duty. This is in line with principles found in cases related to professional negligence or malpractice.

The specific details of the case might influence liability, such as the contractual agreement and the nature of Rachelle's engagement by Jim. However, without further context, based on the information provided, Rachelle's responsibility to produce accurate financial statements suggests that she would be the one liable for negligence.