CHOOSE ONLYONE ANSWER

Alan, Betty, and Coco are good friends. They together formed a company ABC Pty Ltd. (ABC). to sell medical devices.

Coco, who is qualified as an accountant, is made the managing director of ABC, while Alan and Betty are non-executive directors.

Betty is a medical doctor by profession. She maintains a busy medical practice and therefore leaves the affairs of ABC mainly to Coco, who manages the day-to-day operation of ABC.

Alan's maths skills are not strong and he always finds it difficult to understand ABC's financial documents.

ABC's external auditor Doug has just audited ABC's financial report this year, which is fully consistent with a draft director's report prepared and signed by Coco and her internal auditors. Coco andDoug then sent these two documents to Alan and Betty, told them that they believe everything is in order, and asked them to sign the director's report. On the basis of this,Alan and Bettysigned off on the director's reports as well.

It turns out that there are material omissions in the financial report, which Doug, Coco and the accounting staff of ABC did not detect.

Which one of the following is true

a.

It was inappropriate for Alan to rely on the audit report, the draft director's report, and Doug's representations.

b.

None of the other answers.

c.

It was inappropriate for Alan and Betty to rely on the combination of the external audit report and the draft director's report (signed by the internal auditors).

d.

Coco violated the Business Judgment Rule.

e.

Doug and his accounting firm will be liable to a bank that later relies on the audit report when deciding to grant ABC a loan?