Auditing Accounting

Doyle and Jensen, CPAs audited the account of Regal Jewelry, Inc a corporation that imports and deals in fine jewelry. Upon completion of the audit, the auditors supplied Regal jewelry with 20 copies of the audited financial statements. The firm knew in a general way that Regal Jewelry wanted that number of copies of the auditors's report to furnish to banks and other potential lenders. The balance sheet in question was misstated by approximately $800,000, instead of having a $600,000 net wroth, the corporation was insolvent. The management Jewelry had doctored the books to avoid bankrupty. The assets had been overstated by $ 500,000 of fictitious and non texting accounts receivable and $300,000 of non existing jewelry listed as inventory when in fact Regal Jewelry had only empty boxes. The audit failed to detect these fraudulent entries. Thompson relying on the audit financial statements. loaned Real Jewelry $200,000, She seeks to recover her loss form Doyle and Jensen.

State whether each of the following is True or False and give your reasons:

a. If Thompson alleges and proves negligence on the part of Doyle and Jensen, she will be able to recover her loss.

b. If thompson alleges and proves constructive fraud (that is, gross negligence on the pert of Doyle and Jensen), she will be able to recover her loss

c. Thompson does not have a contract with Foyle and Jensen.

d. Unless actual fraud on the part of Doyle and Jensen can be shown, thompson can not recoverery.

e. Thompson is a third-party beneficiary of the contract doyle and Jensen made with regal jewelry.