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?

Question

Quizplus · Accepted Answer

I. Mac relied on the financial statements issued by Beckler & Associates. 
This is a requirement under the principle of foreseeability, which states that the auditor must have foreseeable users of the financial statements in mind and must prepare the financial statements with reasonable care for the use of those users. Since Mac Bank relied on the financial statements and suffered a loss as a result of the misstatements, they can claim that Beckler had a duty of care to them.

II. Beckler's conduct fell below the applicable standard of care. 
This is a requirement under the principle of negligence, which states that the auditor must perform their duties with reasonable care, skill, and diligence. Since the financial statements contained material misstatements that should have been detected during the audit, it can be argued that Beckler's conduct fell below the standard of care expected of auditors.

Therefore, in order for Mac to recover, they must prove both of these elements.

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