N.Lauren hires D. Humphrey, 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 institution. 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 that

Question

Quizplus · Accepted Answer

Key Largo Bank was a foreseen party because the engagement letter acknowledged that the audited financial statements would be provided to financial institutions for a loan, even though no specific institution was named. However, the bank was not in privity of the contract (choice A) because it did not have a direct contractual relationship with Humphrey, and it was not a primary beneficiary (choice B) because the audit was performed for the benefit of Lauren, not the bank.

NLauren Hires D