Beckler & Associates,CPAs,examined and issued an unqualified opinion on the financial statements of Queen Co.The financial statements contained misstatements that resulted in a material overstatement of Queen's net worth.Queen provided the audited financial statements to Mac Bank in connection with a loan made by Mac to Queen.Beckler knew that the financial statements would be provided to Mac.Queen defaulted on the loan.Mac sued Beckler to recover for its losses associated with Queen's default.Which of the following must Mac prove in order to recover? I.Beckler did not conduct the audit with the appropriate level of professional care.
II)Mac relied on the financial statements.
A) I only.
B) II only.
C) Both I and II.
D) Neither I nor II.

Question

Quizplus · Accepted Answer

Mac must prove both that Beckler did not conduct the audit with the appropriate level of professional care (I) and that Mac relied on the financial statements (II) in order to recover for its losses associated with Queen's default. This is because the misstatements in the financial statements were material and resulted in an overstatement of Queen's net worth, which would have influenced Mac's decision to lend money to Queen. Therefore, Mac's reliance on the financial statements was reasonable and foreseeable to Beckler. Beckler, as the auditor, is expected to exercise due care in performing the audit and detecting material misstatements in the financial statements.

Beckler & Associates,CPAs,examined and Issued an Unqualified Opinion on the Financial