Auditing and Assurance Services 9th Edition by Alvin Arens,Mark Beasley,Randy Elder

Exercise 2

Brown Company, CPAs, issued an unqualified opinion on the financial statements of its client King Corporation. Based on the strength of King's financial statements, Safe Bank loaned King $500,000. King Corporation and Safe Bank are both located in a state that follows the Ultramares doctrine. Brown was unaware that Safe would receive a copy of the financial statements or that they would be used by King in obtaining a loan. King defaulted on the loan.
If Safe commences an action for ordinary negligence against Brown, and Brown believes it will be able to prove that it conducted the audit in conformity with GAAS, Brown will
A) Be liable to Safe, because Safe relied on the financial statements.
B) Be liable to Safe, because the statute of frauds has been satisfied.
C) Not be liable to Safe, because there is a conclusive legal presumption that following GAAS is the equivalent of acting reasonably and with due care.
D) Not be liable to Safe, because there was a lack of privity of contract.