Lauren Hires Humphrey,a CPA,to Provide an Audit of Her Financial

question 14

Multiple Choice

Lauren hires Humphrey,a CPA,to provide an audit of her financial statements.The engagement letter includes a statement acknowledging that audited financial statements will be provided to financial institutions for a loan,but does not name any financial institutions.Humphrey completes the audit and issues an unqualified opinion.Based on the audited financial statements,Key Largo Bank approves the 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:

Cash

Money in the form of currency, which includes bills and coins, used as a medium of exchange.

Supplies

Items that are consumed during the operation of a business, such as office supplies, which are essential for day-to-day activities but not directly tied to the product being sold.

Accounts Payable

A liability account that records amounts a company owes to suppliers for goods or services purchased on credit.

Withdrawals

Amounts of money taken out from a business by its owner(s) for personal use, not considered business expenses.