Lauren Hires Humphrey,a CPA,to Audit Her Financial Statements

question 37

Multiple Choice

Lauren hires Humphrey,a CPA,to audit her financial statements.The engagement letter includes a statement acknowledging that audited financial statements are needed for a filing with a regulatory body.Humphrey completes the audit and issues an unqualified opinion.Based on the audited financial statements,Key Largo Bank approves a loan to Lauren.Four months later,Lauren files for bankruptcy.Key Largo Bank would most likely sue Humphrey claiming:

• A)It was in privity of the contract
• B)It was a primary beneficiary
• C)It was a foreseen party
• D)It was a foreseeable party

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Definitions:

Implicit Cost

The opportunity costs that arise from using assets, resources, or funds in specific ways rather than the next best alternative.

Capital

The total value of assets owned by an individual or firm—physical assets plus financial assets.

Opportunity Cost

The cost of the next best alternative foregone as the result of making a decision.

Depreciation

The reduction in the value of an asset over time, often due to wear and tear or obsolescence.