The Credit Alliance v.Arthur Andersen & Co.case established three tests that must be satisfied for holding auditors liable for negligence to third parties.All of the following are tests described EXCEPT
A)Knowledge by the accountant that the financial statements are to be used for a particular purpose.
B)The intention of the third party to rely on those statements.
C)Some action by the accountant linking him or her to the third party that provides evidence of the accountant's understanding of intended reliance.
D)The identity of the third party must be directly known to the auditor.

Question

Quizplus · Accepted Answer

The Credit Alliance v. Arthur Andersen & Co. case established three tests for holding auditors liable for negligence to third parties: (1) knowledge by the accountant that the financial statements are to be used for a particular purpose, (2) the intention of the third party to rely on those statements, and (3) some action by the accountant linking him or her to the third party that provides evidence of the accountant's understanding of intended reliance. The identity of the third party does not necessarily have to be directly known to the auditor. Therefore, the missing test described is D, which is not necessary for imposing liability on auditors for negligence.

The Credit Alliance V